6-K 1 form6kjune2019.htm DOCUMENT 6K  

 

  

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN ISSUER PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the six months ended June 30, 2019

Commission file number: 1-10110

 

BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

(Exact name of Registrant as specified in its charter)

BANK BILBAO VIZCAYA ARGENTARIA, S.A.

(Translation of Registrant’s name into English)

 

Calle Azul, 4

28050 Madrid

Spain

(Address of principal executive offices)

Jaime Sáenz de Tejada Pulido

Calle Azul, 4

28050 Madrid

Spain

Telephone number +34 91 537 7000

 

 (Name, Telephone, E-mail and /or Facsimile Number and Address of Company Contact Person)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F [X]

Form 40-F [  ]

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes [  ]

No [X]

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes [  ]

No [X]

 

 


 

BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

TABLE OF CONTENTS

 

This Form 6-K is incorporated by reference into BBVA’s Registration Statement on Form F-3 (File No. 333-232333) filed with the Securities and Exchange Commission.

 

 


 

CERTAIN TERMS AND CONVENTIONS

The terms below are used as follows throughout this report:

·          BBVA”, the “Bank”, the “Company”, the “Group”, the “BBVA Group” or first person personal pronouns, such as “we”, “us”, or “our”, mean Banco Bilbao Vizcaya Argentaria, S.A. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.

·          BBVA Bancomer” means Grupo Financiero BBVA Bancomer, S.A. de C.V. and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

·          BBVA Compass” means BBVA Compass Bancshares, Inc. and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

·          Consolidated Financial Statements”  means our recast audited consolidated financial statements as of and for the years ended December 31, 2018, 2017 and 2016 prepared in compliance with the International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS-IASB”) and in accordance with the International Financial Reporting Standards adopted by the European Union (“EU-IFRS”) required to be applied under the Bank of Spain’s Circular 4/2004 and Circular 4/2017 (as defined herein) contained in our Recast Form 6-K (as defined below). These recast Consolidated Financial Statements give retrospective effect to certain changes in our operating segments that became effective during the first half of 2019.

·          Garanti BBVA” means Türkiye Garanti Bankası A.Ş., and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

·          Latin America” refers to Mexico and the countries in which we operate in South America and Central America.

·          Recast Form 6-K” means our report on Form 6-K containing our Consolidated Financial Statements and certain revised disclosures, furnished to the SEC on June 25, 2019 (Accession No. 0000842180-19-000009).

·          Unaudited Condensed Interim Consolidated Financial Statements” means our unaudited condensed interim consolidated financial statements as of June 30, 2019 and December 31, 2018 and for the six months ended June 30, 2019 and June 30, 2018 prepared in accordance with International Accounting Standard 34 (IAS 34) as issued by the IASB and adopted by the European Union.

·          2018 Form 20-F” means our Annual Report on Form 20-F for the year ended December 31, 2018 filed with the SEC on March 28, 2019.

In this report, “$”, “U.S. dollars”, and “dollars” refer to United States Dollars and “” and “euro” refer to Euro.

1


 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include words such as “believe”, “expect”, “estimate”, “project”, “anticipate”, “should”, “intend”, “probability”, “risk”, “VaR”, “target”, “goal”, “objective” and similar expressions or variations on such expressions and includes statements regarding future growth rates. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors. The accompanying information in this interim report on Form 6-K, including, without limitation, the information under the items listed below, identifies important factors that could cause such differences:

·          4B. “Business Overview”,

·          4E. “Selected Statistical Information”, and

·          5A. “Operating Results”.

Other important factors that could cause actual results to differ materially from those in forward-looking statements include the factors identified in “Item 3. Key Information—Risk Factors”,  Item 4. Information on the Company”, “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures About Market Risk” in our 2018 Form 20-F, in Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects” in our Recast Form 6-K and the following, among others:

·          political, economic and business conditions in Spain, the European Union, Latin America, Turkey, the United States and other regions, countries or territories in which we operate;

·          our ability to comply with various legal and regulatory regimes and the impact of changes in applicable laws and regulations, including increased capital and provision requirements and taxation, and steps taken towards achieving an EU fiscal and banking union;

·          the monetary, interest rate and other policies of central banks in the European Union, Spain, the United States, Mexico, Turkey and elsewhere;

·          changes or volatility in interest rates, foreign exchange rates (including the euro to U.S. dollar exchange rate), asset prices, equity markets, commodity prices, inflation or deflation;

·          the possible political, economic and regulatory impacts related to the United Kingdom’s proposed withdrawal from the European Union;

·          market adjustments in the real estate sector in Spain, Mexico, Turkey and the United States;

·          the effects of competition in the markets in which we operate, which may be influenced by regulation or deregulation;

·          changes in consumer spending and savings habits, including changes in government policies which may influence spending, saving and investment decisions;

·          adverse developments in emerging countries, in particular Latin America and Turkey, including unfavorable political and economic developments, social instability and changes in governmental policies, including expropriation, nationalization, international ownership legislation, interest rate caps and tax policies;

·          our ability to hedge certain risks economically;

·          downgrades in our credit ratings or in Spain’s credit ratings;

·          the success of our acquisitions, divestitures, mergers and strategic alliances;

2


 

·          our ability to make payments on certain substantial unfunded amounts relating to commitments with personnel;

·          the performance of our international operations and our ability to manage such operations;

·          weaknesses or failures in our Group’s internal or outsourced processes, systems (including information technology systems) and security;

·          weaknesses or failures of our anti-money laundering or anti-terrorism programs, or of our internal policies, procedures, systems and other mitigating measures designed to ensure compliance with applicable anti-corruption laws and sanctions regulations;

·          security breaches, including cyber-attacks;

·          the outcome of legal and regulatory actions and proceedings, both those to which the Group is currently exposed and any others which may arise in the future, including actions and proceedings related to former subsidiaries of the Group or in respect of which the Group may have indemnification obligations;

·          actions that are incompatible with our ethics and compliance standards, and our failure to timely detect or remedy any such actions;

·          our success in managing the risks involved in the foregoing, which depends, among other things, on our ability to anticipate events that are not captured by the statistical models we use; and

·          force majeure and other events beyond our control.

Readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, including, without limitation, changes in our business or acquisition strategy or to reflect the occurrence of unanticipated events.

3


 

PRESENTATION OF FINANCIAL INFORMATION

Under Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of July 19, 2002, all companies governed by the law of an EU Member State and whose securities are admitted to trading on a regulated market of any Member State must prepare their consolidated financial statements for the years beginning on or after January 1, 2005 in conformity with EU-IFRS. The Bank of Spain issued Circular 4/2017 of November 27, 2017 (“Circular 4/2017”), which replaced Circular 4/2004 of December 22, 2004, on Public and Confidential Financial Reporting Rules and Formats (“Circular 4/2004”) for financial statements relating to periods ended January 1, 2018 or thereafter.

There are no differences between EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2017 and IFRS-IASB as of the dates and for the periods presented. The Unaudited Condensed Interim Consolidated Financial Statements included in this report on Form 6-K are in compliance with IAS 34 as issued by the IASB, and adopted by the European Union and required to be applied under the Bank of Spain’s Circular 4/2017.

For a description of our critical accounting policies, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies” in our 2018 Form 20-F

The financial information as of and for the six months ended June 30, 2018 included in the Unaudited Condensed Interim Consolidated Financial Statements may differ from previously reported financial information as of such date and for such period in our previously filed reports, as a result of the modifications referred to below under “—Hyperinflationary Economies” and “—Changes in Operating Segments”.

Application of IFRS 16

On January 1, 2019, IFRS 16 replaced IAS 17 “Leases”. The new standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases. The standard provides two exceptions that can be applied in the case of short-term contracts and those in which the underlying assets have low value. BBVA has applied both exceptions. A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset, which is recorded under the headings “Tangible assets - Property, plants and equipment” and “Tangible assets – Investment properties” of our Unaudited Condensed Interim Consolidated Financial Statements (see Note 16), and a lease liability representing its obligation to make lease payments, which is recorded under the heading “Financial liabilities at amortized cost – Other  financial liabilities” of our Unaudited Condensed Interim Consolidated Financial Statements (see Note 21.5). For the consolidated income statement within our Unaudited Condensed Interim Consolidated Financial Statements, the amortization of the right to use an asset is recorded under the heading “Depreciation and amortization – Tangible assets” (see Note 40) and the financial cost associated with the lease liability is recorded under the heading “Interest expense – Financial liabilities at amortized cost” (see Note 32.2).

With regard to lessor accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor will continue to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.

As allowed by IFRS 16, consolidated balance sheet information as of December 31, 2018 and consolidated income statement information for the six months ended June 30, 2018 included in our Unaudited Condensed Interim Consolidated Financial Statements has not been restated retrospectively in this regard.

See “5A. Operating ResultsFactors Affecting the Comparability of our Results of Operations and Financial ConditionApplication of IFRS 16”. 

4


 

IAS 12 – “Income Taxes” Amendment

As part of the annual improvements to IFRS standards (2015-2017 cycle), IAS 12 - “Income Taxes” was amended for annual reporting periods beginning on or after January 1, 2019. According to the amended standard, an entity shall recognize the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events. In accordance with the amended standard, we recorded the income tax consequences of dividends paid in the six months ended June 30, 2019 (amounting to €32 million income) under “Tax expense or income related to profit or loss from continuing operations” of our Unaudited Condensed Interim Consolidated Financial Statements (see Note 18). Such income tax consequences were previously recorded under “Total Equity”. Financial information for prior periods has not been restated retrospectively in this regard. If amended standard had been followed with respect to the six months ended June 30, 2018, it would have resulted in €38 million income for such period, which would have meant an increase of 1.5% of the consolidated profit of that period. The new standard has had no impact on our consolidated equity.

Hyperinflationary economies

In late 2018, the Group made a change with respect to the accounting policies for hyperinflationary economies in accordance with IAS 29 “Financial information in hyperinflationary economies”. For additional information on such change see “Presentation of Financial Information―Hyperinflationary Economies” in our 2018 Form 20-F In addition, in the third quarter of 2018, Argentina, which is part of the South America segment, was considered to be a hyperinflationary country for the first time, and we applied hyperinflation accounting in respect thereof with effect from January 1, 2018.  As a result thereof, the information for the six months ended June 30, 2018 has been restated for comparative purposes.

Changes in Operating Segments

During 2019, we changed the reporting structure of the BBVA Group’s operating segments as a result of the integration of the Non-Core Real Estate business area into Banking Activity in Spain, which has been renamed “Spain”. Additionally, certain balance sheet intra-group adjustments between Corporate Center and the operating segments have been reallocated to the corresponding operating segments. In addition, certain expenses related to global projects and activities have been reallocated between the Corporate Center and the corresponding operating segments. In order to make the information as of December 31, 2018 and for the six months ended June 30, 2018 comparable with the information as of and for the six months ended June 30, 2019, as required by IFRS 8 “Information by business segments”, figures as of December 31, 2018 and for the six months ended June 30, 2018 have been recast in conformity with the new segment reporting structure.

For additional information on our current segments, see 4B. Business Overview―Operating Segments” and Note 5 to the Unaudited Condensed Interim Consolidated Financial Statements.

 

Statistical and Financial Information

The following principles should be noted in reviewing the statistical and financial information contained herein:

·          Average balances, when used, are based on the beginning and the month-end balances during each six- month period. We do not believe that such monthly averages present trends that are materially different from those that would be presented by daily averages.

·          Unless otherwise stated, any reference to loans refers to both loans and advances.

·          Financial information with respect to segments or subsidiaries may not reflect consolidation adjustments.

·          Certain numerical information in this interim report on Form 6-K may not compute due to rounding. In addition, information regarding period-to-period changes is based on numbers which have not been rounded.

·          Information has not been annualized except where explicitly stated.

 

5


 

3A. SELECTED INTERIM CONSOLIDATED FINANCIAL DATA

Except as indicated below, the historical financial information set forth below has been selected from, and should be read together with, the Unaudited Condensed Interim Consolidated Financial Statements included herein.

For information concerning the preparation and presentation of the financial information contained herein, see “Presentation of Financial Information”.

 

Six months ended June 30,

 

2019

2018 (1)

Change

(%)

 

(In Millions of Euros, Except Per Share/ADS Data)

Consolidated Statement of Income Data

 

 

 

Interest and other income

15,678

14,418

8.7

Interest expense

(6,691)

(5,828)

14.8

Net interest income

8,987

8,590

4.6

Dividend income

103

83

23.2

Share of profit or loss of entities accounted for using the equity method

(19)

13

n.m. (5)

Fee and commission income

3,661

3,553

3.1

Fee and commission expense

(1,191)

(1,073)

11.1

Net gains (losses) on financial assets and liabilities (2)

408

621

(34.2)

Exchange differences, net

134

74

79.7

Other operating income

337

554

(39.2)

Other operating expense

(995)

(1,062)

(6.3)

Income on insurance and reinsurance contracts

1,547

1,601

(3.4)

Expense on insurance and reinsurance contracts

(983)

(1,091)

(9.9)

Gross income

11,989

11,863

1.1

Administration costs

(5,084)

(5,297)

(4.0)

Depreciation and amortization

(790)

(599)

32.0

Provisions or reversal of provisions

(261)

(184)

41.7

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(1,777)

(1,606)

10.6

Net operating income

4,077

4,177

(2.4)

Impairment or reversal of impairment on non-financial assets

(44)

-

-

Gains (losses) on derecognition of non-financial assets and subsidiaries, net

8

80

(90.5)

Negative goodwill recognized in profit or loss

-

-

-

Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

11

29

(62.8)

Operating profit before tax

4,052

4,286

(5.5)

Tax (expense) or income related to profit or loss from continuing operations

(1,136)

(1,222)

(7.1)

Profit from continuing operations

2,916

3,063

(4.8)

Profit from discontinued operations, net

-

-

 

Profit

2,916

3,063

(4.8)

Profit attributable to parent company

2,442

2,536

(3.7)

Profit attributable to non-controlling interests

475

528

(10.1)

Per share/ADS(3) Data

 

 

 

Profit from continuing operations

0.44

0.46

 

Diluted profit attributable to parent company (4)

0.34

0.36

 

Basic profit attributable to parent company

0.34

0.36

 

Dividends declared (In Euros)

 - 

 - 

 

Dividends declared (In U.S. dollars)

 - 

 - 

 

Number of shares outstanding (at period end)

6,667,886,580

6,667,886,580

 

(1)   Restated. See “Presentation of Financial Information—Hyperinflationary economies”. 

(2)  Comprises the following income statement line items contained in the Unaudited Condensed Interim Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net” and “Gains (losses) from hedge accounting, net”.

(3)   Each American Depositary Share (“ADS”) represents the right to receive one ordinary share.

(4)  Calculated on the basis of the weighted average number of BBVA’s ordinary shares outstanding during the relevant period,  including the average number of estimated shares to be converted, excluding the weighted average number of treasury shares during the period (6,668 million shares for the six months ended June 30, 2019 and June 30, 2018).

(5)   Not meaningful.

6


 

 

As of and for the six months ended June 30,

As of and for the year ended December 31,

As of and for the six months ended June 30,

 

2019

2018 (1)

2018 (2)

 

(In Millions of Euros, Except  Percentages)

Consolidated Balance Sheet Data

 

 

 

Total assets

697,626

676,689

689,850

Net assets

54,690

52,874

52,278

Common stock

3,267

3,267

3,267

Financial assets at amortized cost

430,930

419,660

426,349

Financial liabilities at amortized cost - Customer deposits

375,104

375,970

367,312

Debt certificates

66,677

63,970

62,349

Non-controlling interest

5,839

5,764

6,400

Total equity

54,690

52,874

52,278

Consolidated ratios

 

 

 

Profitability ratios:

 

 

 

Net interest margin (3)

2.64%

2.59%

2.51%

Return on average total assets (4)

0.9%

0.9%

0.9%

Return on average shareholders' funds (5)

9.0%

10.1%

9.8%

Credit quality data

 

 

 

Loan loss reserve (6)

12,174

12,217

13,498

Loan loss reserve as a percentage of financial assets at amortized cost

2.83%

2.91%

3.17%

Non-performing asset ratio (NPA ratio) (7)

3.84%

3.94%

4.40%

Impaired loans and advances to customers

16,009

16,349

18,627

Impaired loan commitments and guarantees to customers (8)

707

740

641

 

16,716

17,089

19,268

 

 

 

 

Loans and advances to customers at amortized cost (9)

389,306

386,225

390,661

Loan commitments and guarantees to customers

45,650

47,575

47,554

 

434,955

433,800

438,215

(1)  See “Presentation of Financial Information”. Recast consolidated income statement information for the year ended December 31, 2018 has been extracted from our Consolidated Financial Statements and is not included in our Unaudited Condensed Interim Consolidated Financial Statements.

(2)  Restated. See “Presentation of Financial Information—Hyperinflationary economies”. 

(3)  Represents net interest income as a percentage of average total assets. In order to calculate “Net interest margin” for the six months ended June 30, 2019 and June 30, 2018, respectively, net interest income is annualized by multiplying the net interest income for the period by two.

(4)  Represents profit attributable to parent company as a percentage of average total assets. In order to calculate “Return on average total assets” for the six months ended June 30, 2019 and June 30, 2018, respectively, profit attributable to parent company is annualized by multiplying profit attributable to parent company for the period by two.

(5)  Represents profit attributable to parent company for the period as a percentage of average shareholders’ funds for the period. In order to calculate “Return on average shareholders’ funds” for the six months ended June 30, 2019 and June 30, 2018, respectively, profit attributable to parent company is annualized by multiplying profit attributable to parent company for the period by two.

(6)  Represents impairment losses on loans and advances at amortized cost.

(7)  Represents the sum of impaired loans and advances to customers and impaired loan commitments and guarantees to customers divided by the sum of loans and advances to customers and loan commitments and guarantees to customers.

(8)  We include loan commitments and guarantees to customers in the calculation of our non-performing asset ratio (NPA ratio). We believe that impaired loan commitments and guarantees to customers should be included in the calculation of our NPA ratio where we have reason to know, as of the reporting date, that they are impaired. The credit risk associated with loan commitments and guarantees to customers (consisting mainly of financial guarantees provided to third-parties on behalf of our customers) is evaluated and provisioned according to the probability of default of our customers’ obligations. If impaired loan commitments and guarantees to customers were not included in the calculation of our NPA ratio, such ratio would generally be lower for the periods covered, amounting to 3.68% as of June 30, 2019, 3.77% as of December 31, 2018 and 4.25% as of June 30, 2018.

(9)  Includes impaired loans and advances.

 

 

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4B. Business Overview

BBVA is a highly diversified international financial group, with strengths in the traditional banking businesses of retail banking, asset management and wholesale banking. We also have investments in some of Spain’s leading companies.

The Group is committed to offering a compelling digital proposition and is focused on increasingly offering products online and through mobile channels, improving the functionality of its digital offerings and refining the customer experience. During the first six months of 2019, the number of digital and mobile customers and the volume of digital sales continued to increase.

In the second quarter of 2019, the Group carried out the unification of the BBVA brand in the countries in which it operates, replacing the local brand names in Argentina (Francés), the United States (Compass), Mexico (Bancomer), and Peru (Continental) with BBVA. The bank in Turkey has been renamed Garanti BBVA.

Operating Segments

Set forth below are the Group’s current six operating segments:

•       Spain;

•       The United States;

•       Mexico;

•       Turkey;

•       South America; and

•       Rest of Eurasia.

In addition to the operating segments referred to above, the Group has a Corporate Center which includes those items that have not been allocated to an operating segment. It includes the Group’s general management functions, including costs from central units that have a strictly corporate function; management of structural exchange rate positions carried out by the Financial Planning unit; specific issues of capital instruments to ensure adequate management of the Group’s overall capital position; certain proprietary portfolios; certain tax assets and liabilities; certain provisions related to commitments with employees; and goodwill and other intangibles. BBVA’s 20% stake in Divarian Propiedad, S.A. (“Divarian”) is included in this unit. For more information regarding Divarian, see “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures—2018” and “Item 10. Additional Information—C. Material Contracts—Joint Venture Agreement with Cerberus” in the 2018 Form 20-F.

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The breakdown of the Group’s total assets by operating segments and Corporate Center as of June 30, 2019 and December 31, 2018 is as follows:

 

As of June 30, 2019

As of December 31, 2018 (1)

 

(In Millions of Euros)

Spain

368,982

354,901

The United States

86,229

82,057

Mexico

105,366

97,432

Turkey

64,641

66,250

South America

56,433

54,373

Rest of Eurasia

20,209

18,834

Subtotal Assets by Operating Segment

701,860

673,848

Corporate Center and other adjustments

(4,234)

2,841

 

 

 

Total Assets BBVA Group

697,626

676,689

(1)   Recast. See “Presentation of Financial Information”. 

The following table sets forth information relating to the profit (loss) attributable to parent company by each of BBVA’s operating segments and Corporate Center for the six months ended June 30, 2019 and June 30, 2018:

 

Profit/(Loss) Attributable to Parent Company

 

Six months ended June 30,

 

2019

2018 (1)

2019

2018 (1)

 

(In Millions of Euros)

(In percentage)

Spain

734

746

24.0

24.1

The United States

297

385

9.7

12.4

Mexico

1,287

1,200

42.1

38.8

Turkey

282

372

9.2

12.0

South America

404

332

13.2

10.7

Rest of Eurasia

55

60

1.8

1.9

Subtotal operating segments

3,058

3,094

100.0

100.0

Corporate Center

(616)

(558)

 

 

Profit attributable to parent company

2,442

2,536

 

 

(1)   Restated. See “Presentation of Financial Information—Hyperinflationary economies” and “Presentation of Financial Information—Changes in Operating Segments”.

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The following table sets forth certain summarized information relating to the income of each operating segment and Corporate Center for the six months ended June 30, 2019 and June 30, 2018 and reconciles the income statement of the various operating segments to the consolidated income statement of the Group:

 

Operating Segments

 

Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Corporate Center

BBVA Group

 

(In Millions of Euros)

June 2019

 

 

 

 

 

 

 

 

Net interest income

1,808

1,217

3,042

1,353

1,613

84

(132)

8,987

Gross income

2,818

1,615

3,901

1,677

1,994

220

(236)

11,989

Net margin before provisions (1)

1,190

655

2,611

1,084

1,215

78

(718)

6,115

Operating profit/(loss) before tax

1,027

363

1,783

726

847

69

(762)

4,052

Profit attributable to parent company

734

297

1,287

282

404

55

(616)

2,442

June 2018 (2)

 

 

 

 

 

 

 

 

Net interest income

1,852

1,082

2,648

1,510

1,553

83

(137)

8,590

Gross income

3,023

1,437

3,465

1,924

1,987

217

(188)

11,863

Net margin before provisions (1)

1,336

544

2,309

1,245

1,078

77

(621)

5,967

Operating profit/(loss) before tax

1,056

493

1,654

964

724

93

(698)

4,286

Profit attributable to parent company

746

385

1,200

372

332

60

(558)

2,536

(1)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(2)   Restated. See “Presentation of Financial Information—Hyperinflationary economies” and “Presentation of Financial Information—Changes in Operating Segments”.

10


 

The following tables set forth information relating to the balance sheet of the operating segments, Corporate Center and other adjustments as of June 30, 2019 and December 31, 2018:

 

As of June 30, 2019

 

 

 

 

 

Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and other adjustments

 

(In Millions of Euros)

Total Assets

368,982

86,229

105,366

64,641

56,433

20,209

701,860

(4,234)

Cash, cash balances at central banks and other demand deposits

12,157

7,504

10,051

7,687

7,662

217

45,278

(712)

Financial assets designated at fair value (1)

127,397

10,283

28,405

5,257

7,378

511

179,231

(4,177)

Financial assets at amortized cost

200,008

64,839

61,510

49,119

37,996

19,144

432,617

(1,687)

Loans and advances to customers

171,081

60,130

54,432

39,286

35,712

17,552

378,193

(1,038)

Total Liabilities

360,104

82,253

100,047

62,001

53,898

19,363

677,665

(29,485)

Financial liabilities held for trading and designated at fair value through profit or loss

80,487

1,475

20,682

2,275

1,931

43

106,893

(6,614)

Financial liabilities at amortized cost- Customer deposits

180,434

63,122

52,960

39,456

36,896

4,294

377,162

(2,058)

Total Equity

8,878

3,976

5,319

2,640

2,535

846

24,194

30,494

Assets under management

64,370

-

23,419

2,983

12,577

454

103,804

 

Mutual funds

40,352

-

20,292

872

4,165

-

65,681

 

Pension funds

23,983

-

-

2,111

8,412

454

34,960

 

Other placements

35

-

3,127

-

-

-

3,162

 

(1)   Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

11


 

 

As of December 31, 2018 (1)

 

 

 

 

 

Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and other adjustments

 

(In Millions of Euros)

Total Assets

354,901

82,057

97,432

66,250

54,373

18,834

673,848

2,841

Cash, cash balances at central banks and other demand deposits

28,545

4,835

8,274

7,853

8,987

238

58,732

(536)

Financial assets designated at fair value (2)

107,320

10,481

26,022

5,506

5,634

504

155,467

(2,564)

Financial assets at amortized cost

195,467

63,539

57,709

50,315

36,649

17,799

421,477

(1,818)

Loans and advances to customers

170,438

60,808

51,101

41,478

34,469

16,598

374,893

(867)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

74,543

10,990

9,197

3,530

6,629

1,821

106,709

 

Consumer finance

11,749

9,187

12,145

9,145

9,431

420

52,077

 

Loans

9,665

8,467

7,347

5,265

7,374

410

38,528

 

Credit cards

2,083

720

4,798

3,880

2,058

10

13,549

 

Loans to enterprises

52,514

32,862

20,493

27,657

16,975

13,685

164,186

 

Loans to public sector

17,070

5,400

5,726

95

1,078

414

29,784

 

Total Liabilities

345,592

77,976

90,961

63,657

52,683

18,052

648,921

(25,106)

Financial liabilities held for trading and designated at fair value through profit or loss

71,033

234

18,028

1,852

1,357

42

92,545

(4,778)

Financial liabilities at amortized cost- Customer deposits

183,414

63,891

50,530

39,905

35,842

4,876

378,456

(2,486)

Of which:

 

 

 

 

 

 

 

 

Current and savings accounts

142,912

41,213

38,167

12,530

22,959

3,544

261,324

 

Time deposits

40,072

16,856

11,593

27,367

12,829

1,333

110,051

 

Total Equity

9,309

4,082

6,471

2,593

1,690

782

24,927

27,947

Assets under management

62,559

-

20,647

2,894

11,662

388

98,150

 

Mutual funds

39,250

-

17,733

669

3,741

-

61,393

 

Pension funds

23,274

-

-

2,225

7,921

388

33,807

 

Other placements

35

-

2,914

-

-

-

2,949

 

(1)   Recast. See “Presentation of Financial Information”.

(2)   Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

12


 

Spain

This operating segment includes all of BBVA’s banking and non-banking businesses in Spain, other than those included in the Corporate Center. The main business units included in this operating segment are:

·            Spanish Retail Network: including individual customers, private banking, small companies and businesses in the domestic market;

·            Corporate and Business Banking: which manages small and medium sized enterprises (“SMEs”), companies and corporations, public institutions and developer segments;

·            Corporate and Investment Banking: responsible for business with large corporations and multinational groups and the trading floor and distribution business in Spain; and

·            Other units: which includes the insurance business unit in Spain (BBVA Seguros), the Asset Management unit, which manages Spanish mutual funds and pension funds, and lending to real estate developers and foreclosed real estate assets (including assets from the previous Non-Core Real Estate operating segment), as well as certain proprietary portfolios and certain funding and structural interest-rate positions of the euro balance sheet which are not included in the Corporate Center.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of June 30, 2019 amounted to €127,397 million, a 18.7% increase from the €107,320 million recorded as of December 31, 2018, mainly as a result of increased debt securities in the “Financial assets held for trading” and the “Financial assets at fair value through other comprehensive income” portfolios, in particular, there was an increase in Spanish government debt securities, and to a lesser extent, in foreign government debt securities, which more than offset the decrease in U.S. government debt securities, and increased loans to the retail segments. Also, there has been a contribution from the acceleration in commercial portfolios.

Financial assets at amortized cost of this operating segment as of June 30, 2019 amounted to €200,008 million, a 2.3% increase compared with the €195,467 million recorded as of December 31, 2018. Within this heading, loans and advances to customers amounted to €171,081 million as of June 30, 2019, an increase of 0.4% from the €170,438 million recorded as of December 31, 2018.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of June 30, 2019 amounted to €80,487 million, a 13.3% increase compared with the €71,033 million recorded as December 31, 2018, mainly as a result of the increase in repurchase agreements.

Customer deposits at amortized cost of this operating segment as of June 30, 2019 amounted to €180,434 million, a 1.6% decrease compared with the €183,414 million recorded as of December 31, 2018 mainly as a result of the decrease in time deposits.

Mutual funds of this operating segment as of June 30, 2019 amounted to €40,352 million, a 2.8% increase from the €39,250 million recorded as of December 31, 2018, mainly due to new contributions.

Pension funds of this operating segment as of June 30, 2019 amounted to €23,983 million, a 3.0% increase compared with the €23,274 million recorded as of December 31, 2018.

This operating segment’s non-performing loan ratio decreased to 4.6% as of June 30, 2019 from 5.1% as of December 31, 2018, mainly due to a 9.7% decrease in the balance of non-performing loans in the period (€9,096 million as of June 30, 2019 and €10,073 million as of December 31, 2018). This operating segment’s non-performing loan coverage ratio increased to 58% as of June 30, 2019 from 57% as of December 31, 2018.

13


 

The United States

This operating segment encompasses the Group’s business in the United States. BBVA Compass accounted for 90.8% of this operating segment’s balance sheet as of June 30, 2019. Given the importance of BBVA Compass in this segment, most of the comments below refer to BBVA Compass. This operating segment also includes the assets and liabilities of the BBVA branch in New York, which specializes in transactions with large corporations.

The U.S. dollar appreciated 0.6% against the euro as of June 30, 2019 compared with December 31, 2018, positively affecting the business activity of the United States operating segment as of June 30, 2019 expressed in euros. See “5A.Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition ―Trends in Exchange Rates”

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of June 30, 2019 amounted to €10,283 million, a 1.9% decrease from the €10,481 million recorded as of December 31, 2018, mainly due to a fall in both U.S. Treasury and other U.S. government agencies and agency mortgage-backed securities.

Financial assets at amortized cost of this operating segment as of June 30, 2019 amounted to €64,839 million, a 2.0% increase compared with the €63,539 million recorded as of December 31, 2018. Within this heading, loans and advances to customers of this operating segment as of June 30, 2019 amounted to €60,130 million, a 1.1% decrease compared with the €60,808 million recorded as of December 31, 2018, mainly due to a decrease in commercial loans, in particular, in real estate mortgage loans.

Customer deposits at amortized cost of this operating segment as of June 30, 2019 amounted to €63,122 million, a 1.2% decrease compared with the €63,891 million recorded as of December 31, 2018.

The non-performing loan ratio of this operating segment as of June 30, 2019 and as of December 31, 2018 was 1.3%. This operating segment’s non-performing loan coverage ratio increased to 91% as of June 30, 2019, from 85% as of December 31, 2018, mainly due to the decrease in non-performing loans.

Mexico

The Mexico operating segment comprises the banking and insurance businesses conducted in Mexico by BBVA Bancomer. Since 2018, it also includes BBVA Bancomer’s branch in Houston (which was part of our United States segment in previous periods).

The Mexican peso appreciated 3.1% against the euro as of June 30, 2019 compared with December 31, 2018, positively affecting the business activity of the Mexico operating segment as of June 30, 2019 expressed in euros. See “5A. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition ―Trends in Exchange Rates”

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of June 30, 2019 amounted to €28,405 million, a 9.2% increase from the €26,022 million recorded as of December 31, 2018, mainly as a result of increased reverse repurchase agreements and debt securities within the “Financial assets held for trading” portfolio and due to the appreciation of the Mexican peso against the euro.

Financial assets at amortized cost of this operating segment as of June 30, 2019 amounted to €61,510 million, a 6.6% increase compared with the €57,709 million recorded as of December 31, 2018. Within this heading, loans and advances to customers of this operating segment as of June 30, 2019 amounted to €54,432 million, a 6.5% increase compared with the €51,101 million recorded as of December 31, 2018, mainly due to higher loans to non-financial entities and households and, to a lesser extent, the appreciation of the Mexican peso against the euro.

14


 

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of June 30, 2019 amounted to €20,682 million, a 14.7% increase compared with the €18,028 million recorded as of December 31, 2018, mainly as a result of increased repurchase agreements and, to a lesser extent, the appreciation of the Mexican peso against the euro.

Customer deposits at amortized cost of this operating segment as of June 30, 2019 amounted to €52,960 million, a 4.8% increase compared with the €50,530 million recorded as of December 31, 2018, primarily due to the increase in both demand deposits and time deposits (which increased by 6.6% and 3.7%, respectively, year-on-year) due in part to the appreciation of the Mexican peso against the euro.

Mutual funds of this operating segment as of June 30, 2019 amounted to €20,292 million, a 14.4% increase compared with the €17,733 million recorded as of December 31, 2018, primarily due to the growth in investment funds and, to a lesser extent, the appreciation of the Mexican peso against the euro.

This operating segment’s non-performing loan ratio was 2.2% as of June 30, 2019 and 2.1% as of December 31, 2018. This operating segment’s non-performing loan coverage ratio decreased to 148% as of June 30, 2019 from 154% as of December 31, 2018, due to a decrease of 1.5% in the provisions.

Turkey

This operating segment comprises the banking and insurance businesses conducted by Garanti BBVA and its consolidated subsidiaries, which are mainly carried out in Turkey and, to a lesser extent, in Romania and the Netherlands.

The Turkish lira depreciated 7.7% against the euro as of June 30, 2019 compared to December 31, 2018, negatively affecting the business activity of the Turkey operating segment as of June 30, 2019 expressed in euros. See “5A. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition ―Trends in Exchange Rates”

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of June 30, 2019 amounted to €5,257 million, a 4.5% decrease from the €5,506 million recorded as of December 31, 2018, mainly as a result of the contraction in loans denominated in U.S. dollars, the downward trend in consumer loans and the depreciation of the Turkish lira. This was partially offset by the increase in Turkish lira-denominated corporate banking loans as a result of the recently launched CGF-Credit Guarantee Fund, which is intended to support SMEs and entrepreneurs and pursuant to which loans are provided with Turkish Treasury-backed credit guarantees.

Financial assets at amortized cost of this operating segment as of June 30, 2019 amounted to €49,119 million a 2.4% decrease compared with the €50,315 million recorded as of December 31, 2018. Within this heading, loans and advances to customers of this operating segment as of June 30, 2019 amounted to €39,286 million, a 5.3% decrease compared with the €41,478 million recorded as of December 31, 2018, mainly due to the depreciation of the Turkish lira and the contraction of mortgage and car loans.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of June 30, 2019 amounted to €2,275 million, a 22.9% increase compared with the €1,852 million recorded as of December 31, 2018, mainly as a result of the increase in debt certificates.

Customer deposits at amortized cost of this operating segment as of June 30, 2019 amounted to €39,456 million, a 1.1% decrease compared with the €39,905 million recorded as of December 31, 2018, mainly due to the depreciation of the Turkish lira.

15


 

Mutual funds in this operating segment as of June 30, 2019 amounted to €872 million, a 30.3% increase compared with the €669 million recorded as of December 31, 2018, mainly due to the positive growth in money market related funds due to positive market performance.

Pension funds in this operating segment as of June 30, 2019 amounted to €2,111 million, a 5.1% decrease compared with the €2,225 million recorded as of December 31, 2018, mainly due to the depreciation of the Turkish lira.

The non-performing loan ratio of this operating segment as of June 30, 2019 was 6.3% compared with 5.3% as of December 31, 2018 mainly as a result of increased impairments of wholesale loans affected by the deteriorating macroeconomic scenario. This operating segment’s non-performing loan coverage ratio decreased to 75% as of June 30, 2019 from 81% as of December 31, 2018, mainly due to the increase in the balance of non-performing loans as of June 30, 2019 in comparison with the balance recorded as of December 31, 2018.

South America

The South America operating segment includes the Group’s banking and insurance businesses in the region.

The business units included in the South America operating segment are:

·          Retail and Corporate Banking: includes banks in Argentina, Colombia, Paraguay, Peru, Uruguay and Venezuela.

·          Insurance: includes insurance businesses in Argentina, Colombia and Venezuela.

As of June 30, 2019, the Argentine peso depreciated 11.2% against the euro compared to December 31, 2018, while the Colombian peso and the Peruvian sol appreciated against the euro, compared to December 31, 2018, by 2.9% and 3.3%, respectively. Overall, changes in exchanges rates have negatively affected the business activity of the South America operating segment expressed in euros. See “5A. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition ―Trends in Exchange Rates”

At year-end 2018, the Argentinian economy was considered to be hyperinflationary as defined by IAS 29 (see “Item 5. Operating and Financial Review and Prospects—Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Hyperinflationary economies” of our 2018 Form 20-F).

Financial assets designated at fair value for this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of June 30, 2019 amounted to €7,378 million, a 31.0% increase compared with the €5,634 million recorded as of December 31, 2018, mainly attributable to the positive evolution of credit cards and loans to enterprises.

Financial assets at amortized cost of this operating segment as of June 30, 2019 amounted to €37,996 million, a 3.7% increase compared with the €36,649 million recorded as of December 31, 2018. Within this heading, loans and advances to customers of this operating segment as of June 30, 2019 amounted to €35,712 million, a 3.6% increase compared with the €34,469 million recorded as of December 31, 2018, mainly as a result of increases in Colombia and Peru.

Customer deposits at amortized cost of this operating segment as of June 30, 2019 amounted to €36,896 million, a 2.9% increase compared with the €35,842 million recorded as of December 31, 2018. By country, customer deposits increased in Peru and Colombia.

Mutual funds in this operating segment as of June 30, 2019 amounted to €4,165 million, an 11.3% increase compared with the €3,741 million recorded as of December 31, 2018, mainly due to Argentina.

16


 

Pension funds in this operating segment as of June 30, 2019 amounted to €8,412 million, a 6.2% increase compared with the €7,921 million recorded as of December 31, 2018, mainly as a result of an increase in pension funds in Bolivia.

The non-performing loan ratio of this operating segment as of June 30, 2019 increased to 4.4% compared with 4.3% as of December 31, 2018. This operating segment’s non-performing loan coverage ratio decreased to 95% as of June 30, 2019, from 97% as of December 31, 2018, mainly due to the increase in the balance of non-performing loans as of June 30, 2019 compared to the balance recorded as of December 31, 2018.

Rest of Eurasia

This operating segment includes the retail and wholesale banking businesses carried out by the Group in Europe (primarily Portugal) and Asia, except for those businesses comprised in our Spain and Turkey operating segments.

Financial assets designated at fair value for this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of June 30, 2019 amounted to €511 million, a 1.3% increase compared with the €504 million recorded as of December 31, 2018.

Financial assets at amortized cost of this operating segment as of June 30, 2019 amounted to €19,144 million, a 7.6% increase compared with the €17,799 million recorded as of December 31, 2018. Within this heading, loans and advances to customers of this operating segment as of June 30, 2019 amounted to €17,552 million, a 5.7% increase compared with the €16,598 million recorded as of December 31, 2018, mainly as a result of an increase in enterprise loans and the growth in Asia.

Customer deposits at amortized cost of this operating segment as of June 30, 2019 amounted to €4,294 million, an 11.9% decrease compared with the €4,876 million recorded as of December 31, 2018, due to the negative interest rate environment.

Pension funds in this operating segment as of June 30, 2019 amounted to €454 million, a 17.1% increase compared with the €388 million recorded as of December 31, 2018, mainly due to increases in the business in Portugal.

The non-performing loan ratio of this segment as of June 30, 2019 was 1.4% compared with 1.7% as of December 31, 2018. This operating segment’s non-performing loan coverage ratio increased to 98% as of June 30, 2019, from 83% as of December 31, 2018.

4E. Selected Statistical Information

The following is a presentation of selected statistical information for the periods indicated. Where required under Industry Guide 3, we have provided such selected statistical information separately for our domestic and foreign activities, pursuant to our determination, where applicable, that our foreign operations are significant according to Rule 9-05 of Regulation S-X. The allocation of assets and liabilities is based on the domicile of the Group entity at which the relevant asset or liability is accounted for. Domestic balances are those of Group entities domiciled in Spain, which reflect our domestic activities, and international balances are those of the Group entities domiciled outside of Spain, which reflect our foreign activities.

Financial information as of and for the six months ended  June 30, 2018 has been restated for comparability purposes. See “Presentation of Financial Information”. 

17


 

Average Balances and Rates

The tables below set forth selected statistical information on our average balance sheets, which are based on the beginning and month-end balances in each period. We do not believe that monthly averages present trends materially different from those that would be presented by daily averages. Interest income figures, when used, include interest income on non-accruing loans to the extent that cash payments have been received. Loan fees are included in the computation of interest revenue.

 

Average Balance Sheet - Assets and Interest from Earning Assets

 

Six months ended June 30, 2019

Six months ended June 30, 2018

 

Average Balance

Interest

Average Yield (1)

Average Balance

Interest

Average Yield (1)

 

(In Millions of Euros, Except Percentages)

Assets

 

 

 

 

 

 

Cash and balances with central banks and other demand deposits

48,217

135

0.57%

38,855

55

0.29%

Domestic

17,386

27

0.32%

17,861

21

0.24%

Foreign

30,831

108

0.71%

20,994

33

0.32%

Debt securities and derivatives

177,847

2,803

3.20%

182,680

2,252

2.50%

Domestic

106,173

537

1.03%

117,373

583

1.01%

Foreign

71,674

2,266

6.41%

65,307

1,669

5.18%

Financial assets

412,351

12,605

6.20%

419,400

12,052

5.83%

Loans and advances to central banks

5,023

146

5.90%

6,797

122

3.63%

Loans and advances to credit institutions

28,492

408

2.90%

25,544

327

2.60%

Loans and advances to customers

378,837

12,051

6.45%

387,059

11,603

6.08%

      In euros

181,750

1,708

1.91%

184,002

1,677

1.85%

Domestic

157,350

1,673

2.16%

173,243

1,641

1.92%

Foreign

24,400

36

0.30%

10,759

36

0.68%

      In other currency

197,087

10,343

10.64%

203,057

9,926

9.91%

Domestic

16,396

304

3.76%

14,074

228

3.29%

Foreign

180,691

10,039

11.27%

188,983

9,698

10.41%

Other assets (2)

46,563

135

0.59%

46,467

59

0.26%

Total average assets (3)

684,978

15,678

4.64%

687,403

14,418

4.25%

(1)   Rates have been presented on a non-taxable equivalent basis.

(2)   Includes “Hedging derivatives”, “Fair value changes of the hedged items in portfolio hedges of interest rate risk”, “Joint ventures, associates and unconsolidated subsidiaries”, “Insurance and reinsurance assets”, “Tangible assets”, “Intangible assets”, “Tax assets”, “Other assets”, “Non-current assets and disposal groups held for sale” and “Equity instruments”.

(3)   Foreign activity represented 49.96% of the total average assets for the six months ended June 30, 2019 and 46.28% for the six months ended June 30, 2018.

18


 

 

Average Balance Sheet - Liabilities and Interest Paid on Interest Bearing Liabilities

 

 

Six months ended June 30, 2019

Six months ended June 30, 2018

 

Average Balance

Interest

Average Yield (1)

Average Balance

Interest

Average Yield (1)

 

(In Millions of Euros, Except Percentages)

Liabilities

 

 

 

 

 

 

Deposits from central banks and credit institutions

62,299

1,057

3.44%

67,739

1,140

3.41%

Customer deposits

375,513

3,733

2.02%

374,067

3,529

1.91%

    In euros

183,761

101

0.11%

177,909

167

0.19%

Domestic

158,754

96

0.12%

168,585

161

0.19%

Foreign

25,008

5

0.04%

9,324

6

0.13%

    In other currency

191,752

3,632

3.84%

196,158

3,363

3.48%

Domestic

8,837

127

2.92%

10,143

51

1.01%

Foreign

182,915

3,505

3.89%

186,014

3,312

3.61%

Debt certificates

76,494

962

2.55%

78,620

861

2.22%

Other liabilities (2)

116,478

940

1.64%

114,307

904

1.60%

Total average liabilities

630,784

6,691

2.15%

634,733

6,435

2.06%

Total Equity

54,194

-

-

52,670

-

-

Total average liabilities and equity (3)

684,978

6,691

1.98%

687,403

5,828

1.72%

(1)   Rates have been presented on a non-taxable equivalent basis.

(2)   Includes “Financial liabilities held for trading”, “Hedging derivatives”, “Fair value changes of the hedged items in portfolio hedges of interest rate risk”, “Liabilities under insurance and reinsurance contracts”, “Provisions”, “Tax liabilities”, “Other liabilities”, “Liabilities included in disposal groups classified as held for sale”.

(3)   Foreign activity represented 52.00% of the total average liabilities for the six months ended June 30, 2019 and 48.26% for the six months ended June 30, 2018.

Changes in Net Interest Income-Volume and Rate Analysis

The following tables allocate changes in our net interest income between changes in volume and changes in rate for the six months ended June 30, 2019 compared with the six months ended June 30, 2018 and the six months ended June 30, 2018 compared with the six months ended June 30, 2017. Volume and rate variance have been calculated based on movements in average balances over the period and changes in interest rates on average interest-earning assets and average interest-bearing liabilities. The only out-of-period items and adjustments excluded from the following table are interest payments on loans which are made in a period other than the period in which they are due. Loan fees were included in the computation of interest income.

19


 

 

For the six months ended June 30, 2019/June 30, 2018

 

Increase (Decrease) Due To Changes In

 

Volume (1)

Rate  (2)

Net Change

 

(In Millions of Euros)

Interest income

 

 

 

Cash and balances with central banks

13

67

80

Securities portfolio and derivatives

(60)

610

551

Loans and advances to central banks

(32)

56

25

Loans and advances to credit institutions

38

43

81

Loans and advances to customers

(246)

694

448

   In euros

(21)

52

31

Domestic

(151)

182

32

Foreign

130

(130)

-

   In other currencies

(292)

708

417

Domestic

38

38

76

Foreign

(330)

671

341

Other assets

-

76

76

Total income

 

 

1,260

Interest expense

 

 

 

Deposits from central banks and credit institutions

(92)

8

(83)

Customer deposits

14

190

204

   In euros

5

(71)

(66)

Domestic

(9)

(55)

(65)

Foreign

15

(16)

(1)

   In other currencies

(76)

345

269

Domestic

(7)

83

77

Foreign

(69)

262

193

Debt certificates

(23)

124

100

Other liabilities

6

637

643

Total expense

 

 

863

Net interest income

 

 

396

(1)    The volume effect is calculated as the result of the average interest rate of the earlier period multiplied by the difference between the average balances of both periods.

(2)    The rate effect is calculated as the result of the average balance of the earlier period multiplied by the difference between the average interest rates of both periods.

20


 

 

For the six months ended June 30, 2018/June 30, 2017

 

Increase (Decrease) Due To Changes In

 

Volume (1)

Rate  (2)

Net Change

 

(In Millions of Euros)

Interest income

 

 

 

Cash and balances with central banks

1

48

49

Securities portfolio and derivatives

(4)

(185)

(189)

Loans and advances to central banks

(67)

40

(27)

Loans and advances to credit institutions

(3)

186

183

Loans and advances to customers

(699)

996

297

   In euros

(118)

80

(38)

Domestic

(130)

92

(37)

Foreign

12

(12)

-

   In other currencies

(532)

867

335

Domestic

(23)

52

28

Foreign

(508)

815

307

Other assets

(39)

(161)

(200)

Total income

 

 

113

Interest expense

 

 

 

Deposits from central banks and credit institutions

(258)

460

202

Customer deposits

(172)

678

505

   In euros

(11)

(66)

(78)

Domestic

(10)

(66)

(77)

Foreign

(1)

-

(1)

   In other currencies

(185)

768

583

Domestic

(6)

28

23

Foreign

(179)

740

560

Debt certificates

(76)

72

(4)

Other liabilities

208

(586)

(378)

Total expense

 

 

326

Net interest income

 

 

(213)

 (1)   The volume effect is calculated as the result of the average interest rate of the earlier period multiplied by the difference between the average balances of both periods.

 (2)   The rate effect is calculated as the result of the average balance of the earlier period multiplied by the difference between the average interest rates of both periods.

Interest Earning Assets—Margin and Spread

The following table analyzes the levels of our average earning assets and illustrates the comparative gross and net yields and spread obtained for each of the periods indicated.

21


 

 

Six months ended June 30,

 

2019

2018

 

(In Millions of Euros, except %)

Average interest earning assets

638,415

640,936

Gross yield (1)

2.5%

2.2%

Net yield (2)

2.3%

2.1%

Net interest margin (3)

1.4%

1.3%

Average effective rate paid on interest-bearing liabilities

1.3%

1.1%

Spread (4)

1.2%

1.1%

(1)   “Gross yield” represents total interest income divided by average interest earning assets.

(2)   “Net yield” represents total interest income divided by total average assets.

(3)   “Net interest margin” represents net interest income as percentage of average interest earning assets.

(4)    Spread is the difference between “Gross yield” and the “Average effective rate paid on interest-bearing liabilities”.

ASSETS

Interest-Bearing Deposits in Other Banks

As of June 30, 2019, interbank deposits (excluding deposits with central banks) represented 5.1% of our total assets. Of such interbank deposits, 10.6% were held outside of Spain and 89.4% in Spain. We believe that our deposits are generally placed with highly rated banks and have a lower risk than many loans we could make in Spain. However, such deposits are subject to the risk that the deposit banks may fail or the banking system of certain of the countries in which a portion of our deposits are made may face liquidity or other problems.

Securities Portfolio

As of June 30, 2019, our total securities portfolio was carried on our consolidated balance sheet at a carrying amount (equivalent to its market or appraised value as of such date) of €138,318 million, representing 19.8% of our total assets. €25,261 million, or 18.3%, of our securities portfolio consisted of Spanish Treasury bonds and Treasury bills. The average yield during the six months ended June 30, 2019 on the investment securities that BBVA held was 4.6%, compared with an average yield of approximately 6.2% earned on loans and advances during the six months ended June 30, 2018. For a discussion of our investments in affiliates, see Note 15 to our Unaudited Condensed Interim Consolidated Financial Statements. For a discussion of the manner in which we value our securities, see Note 7 to our Unaudited Condensed Interim Consolidated Financial Statements.

The following tables analyze the amortized cost and fair value, as of June 30, 2019 and December 31, 2018, respectively, of debt securities recorded under “Financial assets at fair value through other comprehensive income” in our Unaudited Condensed Interim Consolidated Financial Statements. Financial assets held for trading, non-trading financial assets mandatorily at fair value through profit or loss and financial assets designated at fair value through profit or loss are not included in the tables below because the amortized costs and fair values of these items are the same. See Notes 7 and 12 to our Unaudited Condensed Interim Consolidated Financial Statements.

22


 

 

As of June 30, 2019

 

Amortized cost

Fair Value (1)

Unrealized Gains

Unrealized Losses

 

(In Millions of Euros)

DEBT SECURITIES

 

 

 

 

AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

 

 

 

 

Domestic

26,138

27,213

1,085

(10)

Spanish Government and other government agencies debt securities

24,304

25,261

967

(10)

Other debt securities

1,834

1,951

118

-

Issued by Central Banks

-

-

-

-

Issued by credit institutions

894

967

73

-

Issued by other institutions

940

984

45

-

Foreign

33,529

33,506

523

(548)

The United States

11,442

11,449

87

(80)

U.S. Treasury and other U.S. Government agencies debt securities

4,831

4,874

52

(8)

States and political subdivisions debt securities

3,389

3,374

9

(24)

Other debt securities

3,222

3,200

26

(48)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

98

100

2

-

Issued by other institutions

3,124

3,100

24

(48)

Mexico

6,209

6,150

17

(77)

Mexican Government and other government agencies debt securities

5,249

5,210

15

(54)

Other debt securities

960

940

2

(23)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

68

68

-

(1)

Issued by other institutions

892

872

2

(22)

Turkey

4,033

3,756

17

(293)

Turkey Government and other government agencies debt securities

3,893

3,620

17

(290)

Other debt securities

140

136

-

(4)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

140

136

-

(4)

Issued by other institutions

-

-

-

-

Other countries

11,845

12,150

403

(98)

Other foreign governments and other government agencies debt securities

6,659

6,840

237

(56)

Other debt securities

5,186

5,310

166

(41)

Issued by Central Banks

1,278

1,273

3

(7)

Issued by credit institutions

1,715

1,814

117

(18)

Issued by other institutions

2,194

2,224

46

(16)

AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

59,667

60,718

1,608

(558)

(1)   Fair values for listed securities are determined on the basis of their quoted prices at the end of the period. Fair values for unlisted securities are based on our estimates and valuation techniques. See Note 12 to the Unaudited Condensed Interim Consolidated Financial Statements.

23


 

 

As of December 31, 2018

 

Amortized cost

Fair Value (1)

Unrealized Gains

Unrealized Losses

 

(In Millions of Euros)

DEBT SECURITIES

 

 

 

 

AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

 

 

 

 

Domestic

18,802

19,553

761

(10)

Spanish Government and other government agencies debt securities

17,205

17,857

661

(9)

Other debt securities

1,597

1,696

100

(1)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

793

855

63

-

Issued by other institutions

804

841

37

(1)

Foreign

34,521

34,157

392

(758)

The United States

14,507

14,338

47

(217)

U.S. Treasury and other U.S. Government agencies debt securities

7,285

7,258

29

(56)

States and political subdivisions debt securities

3,942

3,872

8

(79)

Other debt securities

3,280

3,208

10

(82)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

49

50

1

-

Issued by other institutions

3,231

3,158

9

(82)

Mexico

6,299

6,163

6

(142)

Mexican Government and other government agencies debt securities

5,286

5,169

4

(121)

Other debt securities

1,013

994

2

(21)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

35

34

-

(1)

Issued by other institutions

978

961

2

(20)

Turkey

4,164

3,916

20

(269)

Turkey Government and other government agencies debt securities

4,007

3,771

20

(256)

Other debt securities

157

145

-

(13)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

157

145

-

(13)

Issued by other institutions

-

-

-

-

Other countries

9,551

9,740

319

(130)

Other foreign governments and other government agencies debt securities

4,510

4,601

173

(82)

Other debt securities

5,041

5,139

146

(48)

Issued by Central Banks

987

986

2

(4)

Issued by credit institutions

1,856

1,947

111

(20)

Issued by other institutions

2,197

2,206

33

(25)

AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

53,323

53,709

1,153

(768)

(1)   Fair values for listed securities are determined on the basis of their quoted prices at the end of the period. Fair values for unlisted securities are based on our estimates and valuation techniques. See Note 12 to the Unaudited Condensed Interim Consolidated Financial Statements.

24


 

As of June 30, 2019, the carrying amount of debt securities classified within the fair value through other comprehensive income portfolio by rating categories defined by external rating agencies were as follows:

 

 

 

As of June 30, 2019

 

 

Debt Securities at Fair Value through Other Comprehensive Income

 

 

Carrying Amount

(In Millions of Euros)

 

Percentage of Total (%)

AAA

 

1,785

 

2.9%

AA+

 

8,848

 

14.6%

AA

 

257

 

0.4%

AA-

 

307

 

0.5%

A+

 

2,453

 

4.0%

A

 

578

 

1.0%

A-

 

11,389

 

18.8%

BBB+

 

22,439

 

37.0%

BBB

 

3,947

 

6.5%

BBB-

 

1,868

 

3.1%

BB+ or below

 

4,706

 

7.8%

Without rating

 

2,140

 

3.5%

TOTAL

 

60,718

 

100%

The following tables analyze the amortized cost and fair value, as of June 30, 2019 and December 31, 2018, of our equity securities recorded under “Financial assets at fair value through other comprehensive income” in the Unaudited Condensed Interim Consolidated Financial Statements (see Note 12).

25


 

 

As of June 30, 2019

 

Amortized cost

Fair Value (1)

Unrealized Gains

Unrealized Losses

 

(In Millions of Euros)

EQUITY SECURITIES

 

 

 

 

AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

 

 

 

 

Domestic

2,178

1,937

1

(242)

Equity listed

2,172

1,930

-

(242)

Equity unlisted

6

6

1

-

Foreign

556

676

133

(13)

United States

419

487

68

-

Equity listed

30

70

40

-

Equity unlisted

389

416

28

-

Other countries

137

189

65

(13)

Equity listed

72

90

31

(13)

Equity unlisted

65

99

35

(1)

TOTAL EQUITY SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

2,734

2,613

134

(255)

TOTAL INVESTMENT SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

62,401

63,331

1,742

(813)

(1)   Fair values for listed securities are determined on the basis of their quoted prices at the end of the period. Fair values for unlisted securities are based on our estimates and valuation techniques. See Note 12 to our Unaudited Condensed Interim Consolidated Financial Statements.

26


 

 

As of December 31, 2018

 

Amortized cost

Fair Value (1)

Unrealized Gains

Unrealized Losses

 

(In Millions of Euros)

EQUITY SECURITIES

 

 

 

 

AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

 

 

 

 

Domestic

2,178

1,969

1

(210)

Equity listed

2,172

1,962

-

(210)

Equity unlisted

6

7

1

-

Foreign

543

627

97

(13)

United States

408

448

40

-

Equity listed

20

37

17

-

Equity unlisted

388

411

23

-

Other countries

135

179

57

(13)

Equity listed

70

84

26

(12)

Equity unlisted

65

95

31

(1)

TOTAL EQUITY SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

2,721

2,595

98

(223)

TOTAL INVESTMENT SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

56,044

56,304

1,251

(991)

(1)   Fair values for listed securities are determined on the basis of their quoted prices at the end of the period. Fair values for unlisted securities are based on our estimates and valuation techniques. See Note 12 to the Unaudited Condensed Interim Consolidated Financial Statements.

Loans and Advances to Credit Institutions and Central Banks

As of June 30, 2019, our total loans and advances to credit institutions and central banks amounted to €41,190 million, or 5.9% of total assets, of which total loans and advances to credit institutions and central banks at amortized cost amounted to €16,445 million, or 2.4% of total assets. Net of our impairment losses, total loans and advances to credit institutions and central banks at amortized cost amounted to €16,421 million as of June 30, 2019, or 2.4% of total assets.

Loans and Advances to Customers

As of June 30, 2019, our total loans and advances to customers amounted to €402,747 million, or 57.7% of total assets. Net of our impairment losses, total loans and advances to customers amounted to €390,596 million as of June 30, 2019, or 55.9% of our total assets. As of June 30, 2019 our total loans and advances to customers in Spain amounted to €169,774 million. Our total loans and advances to customers outside Spain amounted to €232,972 million as of June 30, 2019. For a discussion of certain mandatory ratios relating to our loan portfolio, see “Item 4.Information on the Company—B. Business Overview—Supervision and Regulation—Capital Requirements” and “Item 4. Information on the Company—B.  Business Overview— Supervision and Regulation—Investment Ratio” in our 2018 Form 20-F.

27


 

Loans by Geographic Area

The following table shows our net loans and advances to customers as of the dates indicated:

 

As of June 30,

 

As of December 31,

 

As of June 30,

 

2019

 

2018

 

2018

 

(In Millions of Euros)

 

 

Domestic

169,774

 

171,361

 

174,282

Foreign

 

 

 

 

 

Western Europe

29,722

 

29,322

 

24,915

The United States

61,152

 

61,497

 

58,038

Mexico

57,735

 

53,772

 

52,136

Turkey

38,790

 

40,641

 

46,963

South America

39,845

 

38,680

 

40,296

Other

5,728

 

4,777

 

4,613

Total foreign

232,972

 

228,688

 

226,960

Total loans and advances

402,747

 

400,049

 

401,243

Impairment losses

(12,151)

 

(12,199)

 

(13,486)

Total net lending (1)

390,596

 

387,850

 

387,757

(1)   Includes loans and advances to customers included in the following headings: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at amortized cost”, net of impairment losses.

28


 

Loans by Type of Customer

The following table shows our net loans and advances to customers at each of the dates indicated. The classification by type of customer is based principally on regulatory authority requirements in each country:

 

As of June 30, 2019

 

As of December 31, 2018

 

As of June 30, 2018

 

 

 

 

(In Millions of Euros)

Domestic

 

 

 

 

 

Government

16,063

 

16,671

 

17,384

Agriculture

1,198

 

1,118

 

1,048

Industrial

14,513

 

14,683

 

13,337

Real estate and construction

9,915

 

10,671

 

11,140

Commercial and financial

16,104

 

17,131

 

17,676

Loans to individuals(1)

98,790

 

98,131

 

100,387

Other

13,191

 

12,955

 

13,311

Total Domestic

169,774

 

171,361

 

174,282

Foreign

 

 

 

 

 

Government

13,995

 

13,900

 

13,800

Agriculture

2,758

 

2,566

 

2,594

Industrial

42,490

 

41,954

 

40,649

Real estate and construction

18,796

 

18,499

 

19,275

Commercial and financial

39,899

 

36,571

 

34,704

Loans to individuals(1)

81,841

 

80,224

 

79,492

Other

33,193

 

34,973

 

36,446

Total Foreign

232,972

 

228,688

 

226,960

Total Loans and Advances

402,747

 

400,049

 

401,243

Impairment losses

(12,151)

 

(12,199)

 

(13,486)

Total net lending(2)

390,596

 

387,850

 

387,757

(1)   Includes mortgage loans to households for the acquisition of housing.

(2)   Includes loans and advances to customers included in the following headings: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at amortized cost”, net of impairment losses.

The following table sets forth a breakdown, by currency, of our net loan portfolio as of June 30, 2019, December 31, 2018 and June 30, 2018:

 

As of June 30, 2019

 

As of December 31, 2018

 

As of June 30, 2018

 

(In Millions of Euros)

 

 

 

 

 

 

In euros

194,195

 

193,702

 

189,196

In other currencies

196,401

 

194,148

 

198,561

Total net lending (1)

390,596

 

387,850

 

387,757

(1)   Includes loans and advances to customers included in the following headings: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at amortized cost”, net of impairment losses.

29


 

As of June 30, 2019, total loans and advances by BBVA and its subsidiaries to associates and jointly controlled companies amounted to €1,403 million, compared with €1,866 million as of December 31, 2018. Loans and advances outstanding to the Spanish government and its agencies amounted to €16,063 million, or 4.1% of our total loans and advances to customers as of June 30, 2019, compared with the €16,671 million, or 4.2% of our total loans and advances to customers as of December 31, 2018. None of our loans to companies controlled by the Spanish government are guaranteed by the government and, accordingly, we apply normal credit criteria in extending credit to such entities. Moreover, we carefully monitor such loans because governmental policies necessarily affect such borrowers.

Diversification in our loan portfolio is our principal means of reducing the risk of loan losses. We also carefully monitor our loans to borrowers in sectors or countries experiencing liquidity problems. Our exposure to our five largest borrowers as of March 31, 2019 (which is the latest available information) excluding government-related loans, amounted to €22,655  million or approximately 5.3% of our total outstanding loans and advances. As of June 30, 2019 there did not exist any concentration of loans exceeding 10% of our total outstanding loans and advances, other than by category as disclosed above.

Maturity and Interest Sensitivity

The following table sets forth a breakdown by maturity of our total loans and advances to customers by domicile of the branch office that issued the loan and the type of customer as of June 30, 2019. The determination of maturities is based on contract terms.

 

 

Maturity

 

 

 

Due In One Year or Less

Due After One Year Through Five Years

Due After Five Years

Total

 

(In Millions of Euros)

Domestic

 

 

 

 

Government

6,049

3,305

6,710

16,063

Agriculture

344

434

419

1,198

Industrial

5,758

4,878

3,877

14,513

Real estate and construction

1,869

3,294

4,752

9,915

Commercial and financial

9,116

4,544

2,443

16,104

Loans to individuals

6,935

9,203

82,652

98,790

Other

3,980

5,135

4,077

13,191

Total Domestic

34,051

30,792

104,930

169,774

Foreign

 

 

 

 

Government

1,794

2,581

9,620

13,995

Agriculture

1,564

859

336

2,758

Industrial

16,179

18,690

7,621

42,490

Real estate and construction

5,206

8,943

4,647

18,796

Commercial and financial

25,028

12,553

2,318

39,899

Loans to individuals

11,832

28,441

41,568

81,841

Other

9,883

15,012

8,298

33,193

Total Foreign

71,486

87,079

74,408

232,972

Total loans and advances (1)

105,537

117,871

179,339

402,747

(1)   Includes loans and advances to customers included in the following headings: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at amortized cost”.

30


 

The following table sets forth a breakdown of our fixed and variable rate loans which had a maturity of more than one year as of June 30, 2019.

 

Interest Sensitivity of Outstanding Loans and Advances Maturing in More Than One Year

 

Domestic

Foreign

Total

 

 

(In Millions of Euros)

 

 

 

 

 

Fixed rate

56,972

67,787

124,759

Variable rate

78,751

93,700

172,450

Total loans and advances (1)

135,723

161,487

297,210

(1)   Includes loans and advances to customers included in the following headings: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at amortized cost”.

Impairment Losses on Loans and Advances

For a discussion of loan loss reserves, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies—Impairment losses on financial assets” in our 2018 Form 20-F.

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The following table provides information regarding our loan loss reserve and movements of loan charge-offs and recoveries with respect to customers and credit institutions for the periods indicated.

 

As of and for the six months ended June 30,

As of and for the Year Ended December 31,

As of and for the six months ended June 30,

 

2019

2018

2018

 

(In Millions of Euros)

Loan loss reserve at beginning of period:

 

 

 

Domestic

5,774

7,234

7,234

Foreign

6,437

5,550

5,550

First implementation of IFRS 9

-

1,171

1,171

Total Loan loss reserve at beginning of period

12,211

13,955

13,955

 

 

 

 

Loans charged off: (1)

 

 

 

Total domestic

(552)

(2,818)

(669)

Total foreign

(809)

(1,956)

(628)

Total Loans charged off:

(1,361)

(4,774)

(1,297)

 

 

 

 

Provision for loan losses:

 

 

 

Domestic

307

910

399

Foreign

1,665

3,659

1,374

Total Provision for loan losses

1,972

4,569

1,773

 

 

 

 

Acquisition and disposition of subsidiaries

-

-

-

Effect of foreign currency translation

(81)

(239)

(422)

Other

(566)

(1,301)

(511)

 

 

 

 

Loan loss reserve at end of period:

 

 

 

Domestic

5,291

5,774

7,683

Foreign

6,883

6,437

5,815

Total Loan loss reserve at end of period

12,174

12,211

13,498

Loan loss reserve as a percentage of loans and advances at amortized cost at end of period

3.09%

3.19%

3.17%

Net loan charge-offs as a percentage of loans and advances at amortized cost at end of period

0.35%

1.25%

0.30%

(1)   Domestic loans charged off in 2018 were mainly related to the real estate sector.

When the recovery of any recognized amount is considered to be remote, this amount is removed from the consolidated balance sheet, without prejudice to any actions taken by the consolidated entities in order to collect the amount until their rights extinguish in full through expiry, forgiveness or for other reasons.

The loans charged off amounted to €1,361 million during the six months ended June 30, 2019 compared with the €4,774 million during the year ended December 31, 2018 and the €1,297 million during the six months ended June 30, 2018.

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Our loan loss reserves as a percentage of total loans and advances to customers and credit institutions decreased to 3.09% as of June 30, 2019 from 3.19% as of December 31, 2018.

Impaired Loans

Loans are considered to be credit-impaired under IFRS 9 if one or more events have occurred and they have a detrimental impact on the estimated future cash flows of the loan.

Amounts collected in relation to impaired financial assets at amortized cost are used to recognize the related accrued interest and any excess amount is used to reduce the unpaid principal. The approximate amount of interest income on our impaired loans which was included in profit attributable to parent company for the six months ended June 30, 2019 and 2018 was €214 million and €220 million, respectively.

The following table provides information regarding our impaired loans of customers and credit institutions as of the dates indicated:

 

As of June 30,

As of December 31,

 

2019

2018

 

(In Millions of Euros)

Impaired loans

 

 

Domestic

8,568

9,436

Public sector

99

112

Other resident sector

8,469

9,324

Foreign

7,442

6,923

Public sector

6

16

Other non-resident sector

7,436

6,906

Total impaired loans

16,009

16,359

Total loan loss reserve

(12,174)

(12,211)

Impaired loans net of reserves

3,835

4,148

Impaired loans as a percentage of loans and advances at amortized cost

4.04%

4.27%

Impaired loans (net of reserve) as a percentage of loans and advances at amortized cost

0.97%

1.08%

Our total impaired loans to customers and credit institutions amounted to €16,009 million as of June 30, 2019, a 2.1% decrease compared with €16,359 million as of December 31, 2018. This decrease was mainly attributable to the reduction of the Group’s exposure to loans to households.

Our loan loss reserve includes loss reserve for impaired assets and loss reserve for unimpaired assets which present an expected credit loss. As of June 30, 2019, the loan loss reserve amounted to €12,174 million, a 0.3% decrease compared with the €12,211 million recorded as of December 31, 2018.

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The following tables provide information regarding impaired loans to customers and credit institutions recorded under “Financial assets at amortized cost” and accumulated impairment taken for each loan category, as of June 30, 2019, by type of customer:

 

Impaired Loans

Loan Loss Reserve (1)

Impaired Loans as a Percentage of Loans by Category

 

(In Millions of Euros)

Domestic:

 

 

 

Government

99

(58)

0.62%

Credit institutions

 -  

 -  

-

Other sectors

8,469

(5,016)

5.51%

Agriculture

55

(37)

4.63%

Industrial

715

(522)

4.93%

Real estate and construction

1,401

(910)

14.13%

Commercial and other financial

1,220

(820)

7.58%

Loans to individuals

4,402

(2,124)

4.46%

Other

676

(603)

5.12%

Total Domestic

8,568

(5,074)

5.0%

Foreign:

 

 

 

Government

6

(34)

0.04%

Credit institutions

10

(16)

0.55%

Other sectors

7,426

(7,050)

3.39%

Agriculture

87

(75)

3.16%

Industrial

1,753

(1,235)

4.12%

Real estate and construction

880

(534)

4.68%

Commercial and other financial

774

(744)

1.94%

Loans to individuals

2,992

(3,601)

3.66%

Other

940

(862)

2.83%

Total Foreign

7,442

(7,100)

3.19%

Total

16,009

(12,174)

3.98%

(1)   Includes impairment of Stage 1, 2 and 3 loans recorded under “Financial assets at amortized cost”.

Troubled Debt Restructurings

As of June 30, 2019, of the total troubled debt restructurings of €16,448 million, €7,159 million were not considered impaired loans.

Potential Problem Loans

The identification of “Potential problem loans” is based on the analysis of historical non-performing asset ratio trends, categorized by products/clients and geographical locations. This analysis is focused on the identification of portfolios with non-performing asset ratio higher than our average non-performing asset ratio. Once these portfolios are identified, we segregate such portfolios into groups with similar characteristics based on the activities to which they are related, geographical location, type of collateral, solvency of the client and loan to value ratio

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The non-performing asset ratio in our domestic real estate and construction portfolio was 14.1% as of June 30, 2019 (compared with 15.2% as of December 31, 2018), substantially higher than the average non-performing asset ratio for all of our domestic activities (5.0% as of June 30, 2019 and 5.5% as of December 31, 2018) and the average non-performing asset ratio for all of our consolidated activities (3.8% as of June 30, 2019 and 3.9% as of December 31, 2018). Within such portfolio, construction loans and property development loans (which exclude mainly infrastructure and civil construction) had a non-performing asset ratio of 17.5% as of June 30, 2019 (compared with 17.2% as of December 31, 2018).

Foreign Country Outstandings

The following table sets forth, as of the dates indicated, the aggregate amounts of our cross-border outstandings (which consist of loans, interest-bearing deposits with other banks, acceptances and other monetary assets denominated in a currency other than the home-country currency of the office where the item is booked) where outstandings in the borrower’s country exceeded 1% of our total assets as of June 30, 2019 and December 31, 2018. Cross-border outstandings do not include loans in local currency made by our subsidiary banks to customers in other countries to the extent that such loans are funded in the local currency or hedged. As a result, they do not include the vast majority of the loans made by our subsidiaries in South America, Mexico, Turkey and the United States or other regions which are not listed below.

 

As of June 30, 2019

As of December 31, 2018

 

Amount

% of Total Assets

Amount

% of Total Assets

 

 

 

 

(In Millions of Euros, Except Percentages)

United Kingdom

4,958

0.7%

7,114

1.1%

Mexico

1,389

0.2%

2,217

0.3%

Turkey

435

0.1%

5,060

0.7%

Other OECD (Organization for Economic Co-operation and Development)

8,404

1.2%

7,779

1.1%

Total OECD

15,185

2.2%

22,170

3.3%

Central and South America

2,545

0.4%

2,720

0.4%

Other  

5,267

0.8%

4,739

0.7%

Total  

22,997

3.3%

29,629

4.4%

The Bank of Spain requires that minimum reserves be maintained for cross-border risk arising with respect to loans and other outstandings to countries, or residents of countries, falling into certain categories established by the Bank of Spain on the basis of the level of perceived transfer risk. The category that a country falls into is determined by us, subject to review by the Bank of Spain.

Our exposure to borrowers in countries with difficulties as defined by the OECD, excluding our exposure to subsidiaries or companies we manage and trade-related debt, amounted to €125 million and €100 million as of June 30, 2019 and December 31, 2018, respectively. These figures do not reflect loan loss reserves of 18% and 38.0% respectively, of the relevant amounts outstanding at such dates. Deposits with or loans to borrowers in all such countries as of June 30, 2019 did not in the aggregate exceed 0.02% of our total assets.

The country-risk exposures described in the preceding paragraph as of June 30, 2019 and December 31, 2018, do not include exposures for which insurance policies have been taken out with third parties that include coverage of the risk of confiscation, expropriation, nationalization, non-transfer, non-convertibility and, if appropriate, war and political violence. The sums insured as of June 30, 2019 and December 31, 2018 amounted to $90 million and $90 million, respectively (approximately €79 million and €78 million, respectively, based on a euro/dollar exchange rate on June 30, 2019 of $1.00 = €0.89 and on December 31, 2018 of $1.00 = €0.87).

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LIABILITIES

Deposits

The principal components of our customer deposits recorded under “Financial liabilities at amortized cost” are domestic demand and savings deposits and foreign time deposits. The following tables provide information regarding our deposits recorded under “Financial liabilities at amortized cost” by principal geographic area for the dates indicated.

 

As of June 30, 2019

 

Customer Deposits

Bank of Spain and Other Central Banks

Other Credit Institutions

Total

 

(In Millions of Euros)

Total Domestic

169,747

26,812

4,947

201,506

Foreign

 

 

 

 

Western Europe

15,272

-

12,420

27,692

The United States

61,994

80

6,448

68,521

Mexico

53,552

452

1,459

55,462

Turkey

33,702

254

894

34,850

South America

38,917

961

2,224

42,101

Other

1,919

-

4,508

6,427

Total Foreign

205,357

1,746

27,951

235,055

Total

375,104

28,558

32,899

436,561

 

 

As of December 31, 2018

 

Customer Deposits

Bank of Spain and Other Central Banks

Other Credit Institutions

Total

 

(In Millions of Euros)

Total Domestic

166,403

26,544

4,563

197,510

Foreign

 

 

 

 

Western Europe

22,077

-

14,545

36,621

The United States

62,539

61

4,379

66,979

Mexico

50,991

133

566

51,690

Turkey

33,427

212

1,323

34,963

South America

37,970

330

2,335

40,635

Other

2,563

-

4,268

6,831

Total Foreign

209,567

737

27,415

237,719

Total

375,970

27,281

31,978

435,229

For an analysis of our deposits recorded under “Financial liabilities at amortized cost”, including non-interest bearing demand deposits, interest-bearing demand deposits, saving deposits and time deposits, see Note 21 to our Unaudited Condensed Interim Consolidated Financial Statements.

Large denomination deposits may be a less stable source of funds than demand and savings deposits because they are more sensitive to variations in interest rates. For a breakdown by currency of customer deposits as of June 30, 2019 and December 31, 2018, see Note 21 to our Unaudited Condensed Interim Consolidated Financial Statements.

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Return Ratios

The following table sets out our return ratios for the six months ended June 30, 2019, December 31, 2018 and June 30, 2018:

 

As of June 30,

As of December 31,

As of June 30,

 

2019

2018

2018

 

(In Percentages)

Return on equity (1)

9.0%

10.1%

9.8%

Return on assets (2)

0.9%

0.9%

0.9%

Equity to assets ratio (3)

7.8%

7.8%

7.6%

(1)   Represents profit attributable to parent company for the period as a percentage of average shareholders’ funds for the period. For June 30, 2019 and June 30, 2018 data, profit attributable to parent company is annualized by multiplying the profit attributable to parent company for the period by two.

(2)   Represents profit attributable to parent company as a percentage of average total assets for the period. For June 30, 2019 and June 30, 2018 data, profit attributable to parent company is annualized by multiplying the profit attributable to parent company for the period by two.

(3)   Represents average total equity over average total assets.

EQUITY

Accumulated other comprehensive income (loss)

As of June 30, 2019, the accumulated other comprehensive loss amounted to €6,923 million, a 4.05% decrease compared to the €7,215 million recorded as of December 31, 2018.

The majority of the balance is related to the conversion to euros of the financial statements balances from consolidated entities whose functional currency is not the euro.

 

5A.   Operating Results

Factors Affecting the Comparability of our Results of Operations and Financial Condition

Trends in Exchange Rates

We are exposed to foreign exchange rate risk in that our reporting currency is the euro, whereas certain of our subsidiaries and investees keep their accounts in other currencies, principally Mexican pesos, U.S. dollars, Turkish liras, Argentine pesos, Colombian pesos and Peruvian soles. For example, if Latin American currencies, the U.S. dollar or the Turkish lira depreciate against the euro, when the results of operations of our subsidiaries in the countries using these currencies are included in our consolidated financial statements, the euro value of their results declines, even if, in local currency terms, their results of operations and financial condition have remained the same. By contrast, the appreciation of Latin American currencies, the U.S. dollar or the Turkish lira against the euro would have a positive impact on the results of operations of our subsidiaries in the countries using these currencies when their results of operations are included in our consolidated financial statements. Accordingly, changes in exchange rates may limit the ability of our results of operations, stated in euro, to fully show the performance in local currency terms of our subsidiaries.

Except with respect to hyperinflationary economies, the assets and liabilities of our subsidiaries which maintain their accounts in currencies other than the euro have been converted to the euro at the period-end exchange rates and income statement items have been converted at the average exchange rates for the period. The following table sets forth the exchange rates of several Latin American currencies, the U.S. dollar and the Turkish lira against the euro, expressed in local currency per €1.00 as averages for the six months ended June 30, 2019 and June 30, 2018, and as period-end exchange rates as of June 30, 2019 and as of December 31, 2018 according to the European Central Bank (the “ECB”). 

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Average Exchange Rates

Period-end Exchange Rates

 

For the six months ended June 30, 2019

For the six months ended June 30, 2018

As of June 30,

2019

As of December 31, 2018

Mexican peso

21.6509

23.0808

21.8201

22.4921

U.S. dollar

1.1297

1.2105

1.1380

1.1450

Argentine peso

 

 

48.7557

43.2900

Colombian peso

3,602.3248

3,448.2759

3,638.4477

3,745.3184

Peruvian sol

3.7516

3.9303

3.7402

3.8621

Turkish lira

6.3577

4.9561

6.5655

6.0588

During the six months ended June 30, 2019, the Turkish lira and the Colombian peso depreciated against the euro in average terms compared with the same period of the prior year. On the other hand, the Mexican peso, the U.S. dollar and the Peruvian sol appreciated against the euro in average terms. In terms of period-end exchange rates, the Argentine peso and the Turkish lira depreciated against the euro. On the other hand, the Mexican peso, the U.S. dollar, the Colombian peso and the Peruvian sol appreciated against the euro. The overall effect of changes in exchange rates was positive for the period-on-period comparison of the Group’s income statement and negative for the period-on-period comparison of the Group’s balance sheet.

When comparing two dates or periods in this report on Form 6-K we have sometimes excluded, where specifically indicated, the impact of changes in exchange rates by assuming constant exchange rates. In doing this, with respect to income statement amounts, we have used the average exchange rate for the more recent period for both periods and, with respect to balance sheet amounts, we have used the closing exchange rate of the more recent period.

Application of IFRS 16

On January 1, 2019, IFRS 16 replaced IAS 17 “Leases”. The new standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases. The standard provides two exceptions that can be applied in the case of short-term contracts and those in which the underlying assets have low value. BBVA has applied both exceptions.

A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset, which is recorded under the headings “Tangible assets - Property, plants and equipment” and “Tangible assets – Investment properties” of our Unaudited Condensed Interim Consolidated Financial Statements (see Note 16), and a lease liability representing its obligation to make lease payments, which is recorded under the heading “Financial liabilities at amortized cost – Other  financial liabilities” of our Unaudited Condensed Interim Consolidated Financial Statements (see Note 21.5). For the consolidated income statement within our Unaudited Condensed Interim Consolidated Financial Statements, the amortization of the right to use an asset is recorded under the heading “Depreciation and amortization – Tangible assets” (see Note 40) and the financial cost associated with the lease liability is recorded under the heading “Interest expense – Financial liabilities at amortized cost” (see Note 32.2).

With regard to lessor accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor will continue to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.

At the transition date, the Group decided to apply the modified retrospective approach which required the recognition of lease liabilities in an amount equal to the present value of any future payments committed under the Group´s leases as of such date. Regarding the measurement of its right-of-use assets, the Group elected to record an amount equal to the lease liabilities, adjusted for the amount of any advance or accrued lease payment related to the Group´s leases recognized in the consolidated financial statements immediately before the transition date.

As of January 1, 2019, the Group recognized right-of-use assets and lease liabilities for an amount of €3,419 million and €3,472 million, respectively. The impact in terms of capital (CET1) of the Group amounted to -11 basis points.

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As allowed by IFRS 16, consolidated balance sheet information as of December 31, 2018 and consolidated income statement information for the six months ended June 30, 2018 included in our Unaudited Condensed Interim Consolidated Financial Statements has not been restated retrospectively.

IAS 12 – “Income Taxes” Amendment

As part of the annual improvements to IFRS standards (2015-2017 cycle), IAS 12 - “Income Taxes” was amended for annual reporting periods beginning on or after January 1, 2019. According to the amended standard, an entity shall recognize the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events. In accordance with the amended standard, we recorded the income tax consequences of dividends paid in the six months ended June 30, 2019 (amounting to €32 million income) under “Tax expense or income related to profit or loss from continuing operations” of our Unaudited Condensed Interim Consolidated Financial Statements (see Note 18). Such income tax consequences were previously recorded under “Total Equity”. Financial information for prior periods has not been restated retrospectively in this regard. If amended standard had been followed with respect to the six months ended June 30, 2018, it would have resulted in €38 million income for such period, which would have meant an increase of 1.5% of the consolidated profit of that period. The new standard has had no impact on our consolidated equity.

Sale of BBVA Chile

On July 6, 2018, we completed the sale of our 68.19% stake in Banco Bilbao Vizcaya Argentaria Chile, S.A. (“BBVA Chile”), as well as our stake in other companies of the Group in Chile with operations that are complementary to the banking business (among them, BBVA Seguros de Vida, S.A.), to The Bank of Nova Scotia group for $2,200 million in cash. The transaction resulted in a capital gain, net of taxes, of €633 million. BBVA Chile was part of our South America segment. For additional information on this sale, see “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures—2018” in our 2018 Form 20-F.

Transfer of real estate business and sale of stake in Divarian

On October 10, 2018, after obtaining all the required authorizations, BBVA completed the transfer of an important part of the real estate business of BBVA in Spain to Divarian and the sale of an 80% stake in Divarian to Promontoria Marina, S.L.U., a company managed by Cerberus Capital Management L.P. Prior to its contribution to Divarian, the related business was part of our Spain operating segment (and of our Non-Core Real Estate segment before we changed our business segments in 2019).   Following the closing of the transaction, BBVA retained 20% of the share capital of Divarian, which is accounted for under the Corporate Center. For additional information on this transaction, see “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures—2018” and “Item 10. Additional Information—Material Contracts—Joint Venture Agreement with Cerberus” in our 2018 Form 20-F.

Agreement with Voyager Investing UK Limited Partnership (Anfora)

On December 21, 2018, BBVA reached an agreement with Voyager Investing UK Limited Partnership (Voyager”), an entity managed by Canada Pension Plan Investment Board, for the transfer of a portfolio of credit rights which is mainly composed of non-performing and in default mortgage credits. See “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures—2018” in our 2018 Form 20-F.  The transaction was completed during the second quarter of 2019 and resulted in a positive impact in the profit attributable to parent company of the BBVA Group of €130 million (net). The impact in terms of capital of the Group shows a slight increase.

 

39


 

Operating Environment

Our results of operations are dependent, to a large extent, on the level of demand for our products and services (primarily loans and deposits but also intermediation of financial products such as sovereign or corporate debt) in the countries in which we operate. Demand for our products and services in those countries is affected by the performance of their respective economies in terms of gross domestic product (“GDP”), as well as prevailing levels of employment, inflation and, particularly, interest rates. The demand for loans and saving products correlates positively with income, which correlates in turn with the GDP, employment and corporate profits evolution. Regarding interest rates, they have a direct impact on banking results as the banking activity mainly relies on the generation of positive interest margins by paying lower interest on liabilities (primarily deposits) than the interest received on assets (primarily loans). However, it should be noted that higher interest rates, all else being equal, also reduce the demand for banking loans and increase the cost of funding of the banking business.

Global growth has been trending down to a softer pace since the second half of 2018, with a more evident effect of the increase in protectionism on global trade and the industrial sector, while there continues to be robust domestic demand supported by positive employment evolution and low inflation. This performance is widespread across regions, with a cyclical slowdown in the United States, a structural growth moderation in China and steady but lower growth in the Eurozone. Faced with this scenario of increasing trade tensions and lower trade and worsening confidence and investment, the main central banks have changed their monetary policy stance aiming to stabilize global growth. Hence, BBVA Research’s forecast is for a smooth deceleration of GDP growth in the global economy, from 3.7% in 2018 to 3.3% in both 2019 and 2020. This is based on the assumptions that a China-United States trade deal will be reached by the end of the year (although trade disputes will not dissipate completely), trade tensions between United States and Europe will remain contained (with no higher tariffs for cars) and Brexit will not imply a disruptive global shock.

Regarding the evolution of key economic areas for the Group, after growing above 3% in each of 2016 and 2017, the Spanish economy slowed slightly in 2018 but it continued to expand at a strong rate in the first half of 2019. The positive inertia of the economy along with supportive monetary and fiscal policies and relatively low oil prices are supporting the dynamism of domestic demand. According to BBVA Research’s current estimates, growth is expected to slow down to slightly below 2.5% in 2019. The most recent national, regional and local elections have not helped to reduce legal and political uncertainty. As a result of the highly divided parliament, the implementation of necessary structural reforms, may be hindered, thus adding new uncertainty.

Mexico’s GDP grew at an annualized rate of 2.0% in 2018 driven by robust private consumption and, throughout most of the year, by the manufacturing sector. At the beginning of 2019 there were clear signs of moderation in economic activity, mainly in the manufacturing sector. The industrial sector has continued to show low dynamism reflecting the moderation in external demand and higher levels of uncertainty, which resulted in lower investment at the beginning of the year. The services sector has been more resilient, although private consumption has shown signs of moderation in recent quarters, as a result in part of the slowdown in job creation and the deterioration in the quality of new jobs created. GDP moderated significantly in the first quarter of 2019, contracting by 0.2% with respect to the previous quarter, and early indicators of the second quarter point to a slow recovery of internal demand indicators. The greater uncertainty with the new government unleashed by decisions such as the cancellation of the new airport as well as the lack of a clear business plan for Pemex, the state-owned oil company, in addition to the new threats of tariffs on Mexican products by the United States have influenced the strong moderation of investment. After a temporary increase in inflation at the beginning of the second quarter, inflation is expected to continue moderating, which should contribute to strengthening private consumption.

South American GDP grew by 1.2% in 2018. Low regional growth was mainly the result of weak macroeconomic performance of some Mercosur countries, such as Argentina, where GDP declined by 2.5% in 2018, largely due to the effects of the foreign exchange crisis triggered by concerns about the funding of the current account deficit in an environment of declining global liquidity. In the first quarter of 2019, the economic activity in most countries of the region slowed, particularly there was a growth decrease in the quarter in Peru (1.4%), Argentina (0.2%) and Brazil (0.2%), while in Chile and Colombia growth was zero. This lower growth was mainly due to weak public and private investment dynamics, affected by greater global uncertainty and the context of trade tensions, as well as by idiosyncratic factors in some countries such as elections in Argentina and political tensions in Peru.

40


 

BBVA Research’s current growth forecast for South America in 2019 is 1.2%. We expect the highest growth rates in Colombia and Peru (approximately 3%) while in Brazil and Uruguay growth is expected to be slightly less than 1%. BBVA Research expects Argentina’s economy to contract by 1.2%. BBVA Research expects that Argentina will benefit from continuity of stable macro policies (which is our central scenario) and that Brazil’s investment and exports will recover at a gradual pace, with positive effects from structural measures such as the recent Mercosur-European Union agreement. In the Andean countries, BBVA Research expects that the transitory factors that affected growth at the beginning of the year will dissipate and that the more expansive monetary stance in the large economies, in a context of controlled inflation, will lead to the postponement of adjustments in policy rates. The main risks in the region are related to political and fiscal issues and possible delays in investment projects, in addition to more general risks in the context of the global environment.

In the United States, GDP growth was still solid in early 2019 (0.8% year-to-date) after increasing by 2.9% in 2018, but the slowdown in consumption and investment already reflect some weakness of domestic demand, while the fiscal stimulus is expected to fade over the second half of the year. The appreciation of the U.S. dollar could also weigh on exports amid increasing protectionism and further concerns about the global slowdown.  Inflation remains contained despite the overall strength of domestic demand, and an unemployment rate below 4%, while the impact of supply-side shocks from higher tariffs is likely to remain contained so far. As the Federal Reserve is concerned about low inflation and inflation expectations, the central bank has set the stage to begin an easing interest cycle this summer (with estimated rate cuts of up to 75 basis points by March 2020). Under this scenario, BBVA Research expects growth to slow down to 2.5% in 2019 and 2.0% in 2020.

As regards Turkey, in 2018 GDP growth slowed to 2.6%, as tightening financial conditions and increasing geopolitical stress weighed on domestic demand, while the sharp depreciation of the Turkish lira lead to a positive adjustment in the current account (although at the expense of a sharp rise in inflation). The tightening of monetary and fiscal policy designed to correct imbalances generated in prior years will likely continue to slow down growth to around 0.3% in 2019 according to BBVA Research estimates. After the recent replacement of the central bank governor and the fiscal underperformance, risks remain high. A monetary easing cycle will likely start in July.

BBVA Group results of operations for the six months ended June 30, 2019 compared to the six months ended June 30, 2018

The following tables include restated Group unaudited condensed interim consolidated financial information for the six months ended June 30, 2018 due to the change in the reporting structure of the BBVA Group´s operating segments in the first quarter of 2019 and as a result of the application of IAS 29 “Financial information in hyperinflationary economies”. See “Presentation of Financial Information ―Hyperinflationary economies” and “Presentation of Financial Information―Changes in Operating Segments”.

41


 

The table below shows the Group’s unaudited condensed interim consolidated income statements for the six months ended June 30, 2019 and June 30, 2018:

 

For the six months ended June 30,

 

 

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Interest and similar income

15,678

14,418

8.7

Interest and similar expenses

(6,691)

(5,828)

14.8

Net interest income

8,987

8,590

4.6

Dividend income

103

83

23.2

Share of profit or loss of entities accounted for using the equity method

(19)

13

n.m. (3)

Fee and commission income

3,661

3,553

3.1

Fee and commission expense

(1,191)

(1,073)

11.1

Net gains (losses) on financial assets and liabilities (1)

408

621

(34.2)

Exchange differences, net

134

74

79.7

Other operating income

337

554

(39.2)

Other operating expenses

(995)

(1,062)

(6.3)

Income on insurance and reinsurance contracts

1,547

1,601

(3.4)

Expenses on insurance and reinsurance contracts

(983)

(1,091)

(9.9)

Gross income

11,989

11,863

1.1

Administration costs

(5,084)

(5,297)

(4.0)

Personnel expenses

(3,131)

(3,104)

0.9

Other administrative expenses

(1,953)

(2,193)

(11.0)

Depreciation and amortization

(790)

(599)

32.0

Net margin before provisions (2)

6,115

5,967

2.5

Provisions or reversal of provisions

(261)

(184)

41.7

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(1,777)

(1,606)

10.6

Impairment or reversal of impairment on non-financial assets

(44)

-

n.m. (3)

Gains (losses) on derecognition of non-financial assets and subsidiaries, net

8

80

(90.5)

Negative goodwill recognized in profit or loss

-

-

-

Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

11

29

(62.8)

Operating profit/(loss) before tax

4,052

4,286

(5.4)

Tax expense or income related to profit or loss from continuing operations

(1,136)

(1,222)

(7.1)

Profit from continuing operations

2,916

3,063

(4.8)

Profit from discontinued operations, net

-

-

-

Profit

2,916

3,063

(4.8)

Profit attributable to parent company

2,442

2,536

(3.7)

Profit attributable to non-controlling interests

475

528

(10.1)

(1)   Comprises the following income statement line items contained in the Unaudited Condensed Interim Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net” and “Gains (losses) from hedge accounting, net”.

(2)   Calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(3)   Not meaningful.

42


 

The changes in our unaudited condensed interim consolidated income statements for the six months ended June 30, 2019 and June 30, 2018 were as follows:

Net interest income

The following table summarizes net interest income for the six months ended June 30, 2019 and June 30, 2018.

 

For the six months ended June 30,

 

 

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Interest and other income

15,678

14,418

8.7

Interest expense

(6,691)

(5,828)

14.8

Net interest income

8,987

8,590

4.6

Net interest income for the six months ended June 30, 2019 amounted to €8,987 million, a 4.6% increase compared with the €8,590 million recorded for the six months ended June 30, 2018, mainly as a result of the positive evolution in Mexico and the United States (as described below). At constant exchange rates, net interest income increased by 7.1% mainly as a result of the growth in loans in Mexico and the United States. The following factors, set out by region, were the main contributors toward the 4.6% increase in net interest income:

·          United States: there was a 12.6% period-on-period increase in net interest income due mainly to higher interest rates as a result of the impact of increases in the Federal Reserve Board benchmark interest rate and the appreciation of the U.S. dollar.

·          Mexico: there was a 14.9% period-on-period increase in net interest income mainly as a result of higher net revenues from the retail portfolio, the lower cost of deposits, the increase in the average volume of loans and advances to customers and the appreciation of the Mexican peso.

·          South America: there was a 3.9% period-on-period increase in net interest income as a result of the growth in the yield on interest-earning assets, particularly in Argentina, and in the average volume of interest earning assets, particularly in Peru

The increase in net interest income was partially offset by:

·          Spain: there was a 2.4% period-on-period decrease in net interest income mainly as a result of the lower contribution from the ALCO portfolio and the effect of the implementation of IFRS 16.

·          Turkey: there was a 10.4% period-on-period decrease in net interest income mainly as a result of the depreciation of the Turkish lira against the euro.

Dividend income

Dividend income for the six months ended June 30, 2019 amounted to €103 million, a 23.2% increase compared with the €83 million recorded for the six months ended June 30, 2018, mainly as a result of higher dividend income relating to South America, particularly in Argentina.

Share of profit or loss of entities accounted for using the equity method

Share of profit or loss of entities accounted for using the equity method for the six months ended June 30, 2019 was a €19 million loss, compared with the €13 million profit recorded for the six months ended June 30, 2018.

43


 

Fee and commission income

The breakdown of fee and commission income for the six months ended June 30, 2019 and June 30, 2018 is as follows:

 

For the six months ended June 30,

 

 

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Bills receivable

19

23

(15.9)

Current accounts

232

223

3.8

Credit and debit cards

1,538

1,382

11.3

Checks

100

92

8.1

Transfers and others payment orders

319

295

8.2

Insurance product commissions

87

96

(9.1)

Commitment fees

60

117

(48.4)

Contingent risks

196

195

0.2

Asset Management

511

518

(1.4)

Securities fees

158

192

(17.3)

Custody securities

59

62

(5.1)

Other

381

357

6.7

Fee and commission income

3,661

3,553

3.1

Fee and commission income increased by 3.1% to €3,661 million for the six months ended June 30, 2019 from €3,553 million for the six months ended June 30, 2018, primarily due to the increase in fee and commission income relating to the use of credit and debit cards and the appreciation of the currencies of the main countries where BBVA operates against the euro.

Fee and commission expense

The breakdown of fee and commission expense for the six months ended June 30, 2019 and June 30, 2018 is as follows:

 

For the six months ended June 30,

 

 

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Credit and debit cards

798

706

13.1

Transfers and others payment orders

65

49

33.2

Commissions for selling insurance

26

33

(21.9)

Other fees and commissions

302

285

6.1

Fee and commission expense

1,191

1,073

11.1

Fee and commission expense increased by 11.1% to €1,191 million for the six months ended June 30, 2019 from €1,073 million for the six months ended June 30, 2018, primarily due to an increase in commissions paid by the BBVA Group to other financial institutions in connection with the use of  credit and debit cards, particularly in Mexico and Turkey, and the appreciation of the currencies of the main countries where BBVA operates against the euro.

Net gains (losses) on financial assets and liabilities

Net gains on financial assets and liabilities decreased by 34.2% to €408 million for the six months ended June 30, 2019 compared to a net gain of €621 million for the six months ended June 30, 2018, mainly due to the weaker performance in Spain and the impact of the depreciation of the Turkish lira.

44


 

The table below provides a breakdown of net gains (losses) on financial assets and liabilities for the six months ended June 30, 2019 and 2018:

 

For the six months ended June 30,

 

 

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net

67

130

(48.5)

Financial assets at fair value through other comprehensive income

49

102

(51.9)

Financial assets at amortized cost

15

21

(31.1)

Other financial assets and liabilities

3

7

(50.6)

Gains (losses) on financial assets and liabilities held for trading, net

173

329

(47.5)

Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net

98

3

n.m. (1)

Gains or (losses) on financial assets and liabilities designated at fair value through profit or loss, net

(3)

107

n.m. (1)

Gains (losses) from hedge accounting, net

73

51

43.1

Net gains (losses) on financial assets and liabilities

408

621

(34.2)

(1)   Not meaningful.

Gains on derecognition of financial assets and liabilities not measured at fair value through profit or loss decreased to €67 million in the six months ended June 30, 2019 from €130 million in the six months ended June 30, 2018 mainly due to the weaker results of the insurance business in Spain (through BBVA Seguros) and Turkey.

Gains on financial assets and liabilities held for trading decreased by 47.5%, to €173 million in the six months ended June 30, 2019 from €329 million in the six months ended June 30, 2018, mainly as a result of the impact of the depreciation of the Turkish lira, as well as the decrease in gains associated with derivatives and interest rate securities in Spain.

Gains on non-trading financial assets mandatorily at fair value through profit or loss increased to €98 million in the six months ended June 30, 2019 from €3 million in the six months ended June 30, 2018, primarily due to increased profits from the management of securities portfolios in South America, particularly in Argentina.

Gains (losses) on financial assets and liabilities designated at fair value through profit or loss amounted to a €3 million loss in the six months ended June 30, 2019 from the €107 million gain recorded in the six months ended June 30, 2018, mainly as a result of the impact of the depreciation of the Turkish lira and weaker performance in Spain, affected by uneven market performance and lower portfolio sales in such semester.

Exchange differences, net

Exchange differences increased to a €134 million gain for the six months ended June 30, 2019 from a €74 million gain for the six months ended June 30, 2018 mainly as a result of the appreciation of the currencies of the main countries where BBVA operates against the euro (in average terms).

Other operating income and expense, net

Other operating income for the six months ended June 30, 2019 decreased by 39.2% to €337 million compared with the €554 million recorded for the six months ended June 30, 2018, mainly as a result of lower income from real estate related services in Spain following the various dispositions of real estate related assets completed by BBVA after June 30, 2018 (see “—Results of Operations by Operating Segment for the Six Months Ended June 30, 2019 Compared with the Six Months Ended June 30, 2018—Spain”). 

Other operating expense for the six months ended June 30, 2019 amounted to €995 million, a 6.3% decrease compared with the €1,062 million recorded for the six months ended June 30, 2018, mainly as a result of lower expense from real estate related services in Spain, partially offset by the greater contributions made to the Deposit Guarantee Fund of Credit Institutions and to the ECB’s Single Resolution Fund.

45


 

Income and expense on insurance and reinsurance contracts

Income on insurance and reinsurance contracts for the six months ended June 30, 2019 was €1,547 million, a 3.4% decrease compared with the €1,601 million income recorded for the for the six months ended June 30, 2018.

Expense on insurance and reinsurance contracts for the six months ended June 30, 2019 was €983 million, a 9.9% decrease compared with the €1,091 million expense recorded for the six months ended June 30, 2018, mainly as a result of the lower insurance activity related to insurance-savings products in Spain (through BBVA Seguros).

Administration costs

Administration costs, which include personnel expense and other administrative expense, for the six months ended June 30, 2019 amounted to €5,084 million, a 4.0% decrease compared with the €5,297 million recorded for the six months ended June 30, 2018, mainly as a result of lower rent expenses due to the implementation of IFRS 16 on January 1, 2019 and lower costs in Spain driven by the efficiency plans.

The table below provides a breakdown of personnel expense for the six months ended June 30, 2019 and June 30, 2018:

 

For the six months ended June 30,

 

 

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Wages and salaries

2,435

2,432

0.1

Social security costs

396

369

7.4

Defined contribution plan expense

55

51

7.7

Defined benefit plan expense

24

30

(20.0)

Other personnel expense

222

223

(0.7)

Personnel expenses

3,131

3,104

0.9

 

The table below provides a breakdown of other administrative expense for the six months ended June 30, 2019 and June 30, 2018:

 

For the six months ended June 30,

 

 

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Technology and systems

604

556

8.7

Communications

109

119

(8.5)

Advertising

158

174

(8.8)

Property, fixtures and materials

266

492

(45.9)

 Of which:

 

 

 

    Rent expense

52

282

(81.5)

Taxes other than income tax

203

215

(5.5)

Other expense

612

638

(4.0)

Other administrative expense

1,953

2,193

(11.0)

Depreciation and amortization

Depreciation and amortization for the six months ended June 30, 2019 was €790 million, a 32.0% increase compared with the €599 million recorded for the six months ended June 30, 2018, mainly as a result of the implementation of IFRS 16 and higher expense from amortization of intangible assets, particularly related to software in Spain.

46


 

Provisions or reversal of provisions

Provisions or reversal of provisions for the six months ended June 30, 2019 amounted to an expense of €261 million, a 41.7% increase compared with the €184 million recorded for the six months ended June 30, 2018. In the six months ended June 30, 2018, there were reversals of provisions relating to sales in subsidiaries in Turkey, Mexico and Spain.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification (represented by the financial assets at fair value through other comprehensive income portfolio) for the six months ended June 30, 2019 was an expense of €1,777 million, a 10.6% increase compared with the €1,606 million expense recorded for the six months ended June 30, 2018, mainly due to increases in impairment in Mexico and Turkey.

The table below provides a breakdown of impairment or reversal of impairment on financial assets not measured at fair value through profit or loss for the six months ended June 30, 2019 and June 30, 2018:

 

For the six months ended June 30,

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Financial assets at fair value through other comprehensive income

(5)

12

n.m.(1)

Financial assets at amortized cost

(1,772)

(1,618)

9.5

Impairment or reversal of impairment on financial assets

not measured at fair value through profit or loss

(1,777)

(1,606)

10.6

(1)   Not meaningful.

Gains (losses) on derecognition of non-financial assets and subsidiaries, net

Gains on derecognition of non-financial assets and subsidiaries, for the six months ended June 30, 2019 amounted to €8 million, a 90.5% decrease compared with the €80 million recorded for the six months ended June 30, 2018. Capital gains in the six months ended June 30, 2018 related mainly to the sale of portfolios in Mexico and in the former Non-Core Real Estate area during the six months ended June 30, 2018.

Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

Profit from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations for the six months ended June 30, 2019 was €11 million, compared with the €29 million recorded for the six months ended June 30, 2018.

Operating profit before tax

As a result of the foregoing, operating profit before tax for the six months ended June 30, 2019 amounted to €4,052 million, a 5.4% decrease compared with the €4,286 million operating profit before tax recorded for the six months ended June 30, 2018.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations for the six months ended June 30, 2019 amounted to €1,136 million, a 7.1% decrease compared with the €1,222 million expense recorded for the six months ended June 30, 2018, mainly attributable to the lower operating profit before tax and to the implementation of the Amendment to IAS 12.

Profit

As a result of the foregoing, profit for the six months ended June 30, 2019 amounted to €2,916 million, a 4.8% decrease compared with the €3,063 million recorded for the six months ended June 30, 2018.

47


 

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company for the six months ended June 30, 2019 amounted to €2,442 million, a 3.7% decrease compared with the €2,536 million recorded for the six months ended June 30, 2018.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests for the six months ended June 30, 2019 amounted to €475 million, a 10.1% decrease compared with the €528 million profit attributable to non-controlling interests recorded for the six months ended June 30, 2018, mainly as a result of the decrease in the profit attributable to non-controlling interests in Turkey.

 

Results of Operations by Operating Segment for the six months ended June 30, 2019 compared with the six months ended June 30, 2018

The following tables provide restated unaudited condensed interim consolidated financial information for the six months ended June 30, 2018 by operating segment due to the change in the reporting structure of the BBVA Group´s operating segments during the first quarter of 2019, and as a result of the application of IAS 29 “Financial information in hyperinflationary economies”. See “Presentation of Financial Information—Changes in Operating Segments” and “Presentation of Financial Information—Hyperinflationary economies” and Note 5 to the Unaudited Condensed Interim Consolidated Financial Statements.

The information contained in this section is presented under management criteria. The tables set forth below show the income statements of our operating segments.

 

48


 

 

 

For the six months ended June 30, 2019

 

 

 

Spain

United States

Mexico

Turkey

South America

Rest of Eurasia

Corporate Center

Group

 

 

 

(In Millions of Euros)

 

 

Net interest income

1,808

1,217

3,042

1,353

1,613

84

(132)

8,987

 

 

Net fees and commissions

846

320

621

360

298

69

(44)

2,470

 

 

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

92

79

135

(65)

314

60

(74)

542

 

 

Other operating income and expense, net (2)

72

(1)

102

30

(231)

6

13

(10)

 

 

Gross income

2,818

1,615

3,901

1,677

1,994

220

(236)

11,989

 

 

Administration costs

(1,389)

(849)

(1,118)

(508)

(695)

(133)

(391)

(5,084)

 

 

Depreciation and amortization

(239)

(110)

(172)

(86)

(84)

(9)

(91)

(790)

 

 

Net margin before provisions (3)

1,190

655

2,611

1,084

1,215

78

(718)

6,115

 

 

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

25

(286)

(818)

(337)

(349)

(11)

-

(1,777)

 

 

Provisions or reversal of provisions and other results

(188)

(6)

(10)

(21)

(19)

1

(44)

(286)

 

 

Operating  profit/ (loss) before tax

1,027

363

1,783

726

847

69

(762)

4,052

 

 

Tax expense or income related to profit or loss from continuing operations

(292)

(67)

(496)

(153)

(271)

(13)

156

(1,136)

 

 

Profit from continuing operations

735

297

1,287

573

576

55

(606)

2,916

 

 

Profit from discontinued operations /Profit from corporate operations, net

-

-

-

-

-

-

-

-

 

 

Profit

735

297

1,287

573

576

55

(606)

2,916

 

 

Profit attributable to non-controlling interests

(1)

-

-

(291)

(171)

-

(10)

(475)

 

 

Profit attributable to parent company

734

297

1,287

282

404

55

(616)

2,442

 

(1)   “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”. 

(2)   Includes the following income statement line items; “Dividend income”, “Share of profit or loss of entities accounted for using the equity method” and “Income/Expense on insurance and reinsurance contracts” and “Other operating income/expense”.

(3)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

                         
 

 

49


 

 

 

 

 

For the six months ended June 30, 2018

 

 

Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Corporate Center

Group

 

(In Millions of Euros)

 

Net interest income

1,852

1,082

2,648

1,510

1,553

83

(137)

8,590

Net fees and commissions

851

302

589

371

321

79

(32)

2,480

Net gains (losses) on financial assets and liabilities and exchange differences (net) (1)

282

49

144

4

219

55

(58)

696

Other operating income and expenses (net) (2)

38

4

84

39

(106)

-

39

98

Gross income

3,023

1,437

3,465

1,924

1,987

217

(188)

11,863

Administration costs

(1,535)

(807)

(1,034)

(601)

(857)

(137)

(328)

(5,297)

Depreciation and amortization

(152)

(86)

(122)

(78)

(52)

(3)

(105)

(599)

Net margin before provisions (3)

1,336

544

2,309

1,245

1,078

77

(621)

5,967

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(213)

(63)

(708)

(315)

(321)

14

-

(1,606)

Provisions or reversal of provisions and other results

(67)

12

54

34

(34)

2

(77)

(75)

Operating  profit/ (loss) before tax

1,056

493

1,654

964

724

93

(698)

4,286

Tax expense or income related to profit or loss from continuing operations

(309)

(108)

(454)

(210)

(259)

(33)

150

(1,222)

Profit from continuing operations

748

385

1,200

754

465

60

(548)

3,063

Profit from discontinued operations /Profit from corporate operations (net)

 -    

 -    

 -    

 -    

 -    

-

 -    

 -    

Profit

748

385

1,200

754

465

60

(548)

3,063

Profit attributable to non-controlling interests

(2)

-

-

(383)

(133)

-

(10)

(528)

Profit attributable to parent company

746

385

1,200

372

332

60

(558)

2,536

                     

(1)   “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”. 

(2)   Includes the following income statement line items; “Dividend income”, “Share of profit or loss of entities accounted for using the equity method” and “Income/Expense on insurance and reinsurance contracts” and “Other operating income/expense”.

(3)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

 

 

 

50


 

SPAIN

 

For the six months ended June 30,

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Net interest income

1,808

1,852

(2.4)

Net fees and commissions

846

851

(0.6)

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

92

282

(67.4)

Other operating income and expense, net

(185)

(198)

(6.3)

Income and expense on insurance and reinsurance contracts

258

235

9.4

Gross income

2,818

3,023

(6.8)

Administration costs

(1,389)

(1,535)

(9.5)

Depreciation and amortization

(239)

(152)

56.5

Net margin before provisions (2)

1,190

1,336

(10.9)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

25

(213)

n.m. (3)

Provisions or reversal of provisions and other results

(188)

(67)

181.9

Operating profit/(loss) before tax

1,027

1,056

(2.8)

Tax expense or income related to profit or loss from continuing operations

(292)

(309)

(5.5)

Profit from continuing operations

735

748

(1.7)

Profit from corporate operations, net

-

-

-

Profit

735

748

(1.7)

Profit attributable to non-controlling interests

(1)

(2)

(17.0)

Profit attributable to parent company

734

746

(1.7)

(1)   Includes: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   Calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(3)   Not meaningful.

On October 10, 2018, after obtaining all the required authorizations, BBVA completed the transfer of an important part of the real estate business of BBVA in Spain to Divarian and the sale of an 80% stake in Divarian to Promontoria Marina, S.L.U., a company managed by Cerberus Capital Management, L.P. Additionally, on December 21, 2018, the Group sold its 25.24% stake in Testa Residencial SOCIMI, S.A. for €478 million. Moreover, on December 21, 2018, BBVA reached an agreement with Voyager (Anfora), for the transfer of a portfolio of credit rights which is mainly composed of non-performing and in-default mortgage credits. The transaction was completed during the second quarter of 2019. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition”.

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2019 amounted to €1,808 million, a 2.4% decrease compared with the €1,852 million recorded for the six months ended June 30, 2018, mainly as a result of the lower contribution from the ALCO portfolio and the effect of the implementation of IFRS 16. The net interest margin over total average assets of this operating segment amounted to 0.51% for the six months ended June 30, 2019, compared with 0.54% for the six months ended June 30, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the six months ended June 30, 2019 amounted to €846 million, a 0.6% decrease compared with the €851 million recorded for the six months ended June 30, 2018.

51


 

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the six months ended June 30, 2019 was a net gain of €92 million, a 67.4% decrease compared with the €282 million net gain recorded for the six months ended June 30, 2018, mainly as a result of uneven market performance in the six months ended June 30, 2019 and lower portfolio sales.

Other operating income and expense, net

Other net operating expense of this operating segment for the six months ended June 30, 2019 amounted to €185 million, a 6.3% decrease compared with the €198 million expense recorded for the six months ended June 30, 2018, mainly due to the sale of part of the real estate business, as explained above, partially offset by the greater contributions made to the Deposit Guarantee Fund of Credit Institutions and to the ECB’s Single Resolution Fund.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the six months ended June 30, 2019 was €258 million, a 9.4% increase compared with the €235 million recorded for the six months ended June 30, 2018, mainly as a result of higher premiums collected and a lower claims ratio.

Administration costs

Administration costs of this operating segment for the six months ended June 30, 2019 amounted to €1,389 million, a 9.5% decrease compared with the €1,535 million recorded for the six months ended June 30, 2018, mainly as a result of a decline in both personnel expense and other administrative expense driven by the evolution of efficiency plans and to the implementation of IFRS 16 on January 1, 2019.

Depreciation and amortization

Depreciation and amortization for the six months ended June 30, 2019 was €239 million, a 56.5% increase compared with the €152 million recorded for the six months ended June 30, 2018 mainly as a result of the implementation of IFRS 16 on January 1, 2019.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the six months ended June 30, 2019 amounted to a €25 million income compared with the €213 million expense recorded for the six months ended June 30, 2018, mainly as a result of the sale of non-performing and in-default mortgage credits and to lower loan-loss provisions of real-estate developer loans previously allocated to the former Non-Core Real Estate area.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the six months ended June 30, 2019 were a €188 million expense, compared with the €67 million expense recorded for the six months ended June 30, 2018. There were positive valuation of assets in the former Non-Core Real Estate area during the first semester of 2018.

Operating profit/ (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the six months ended June 30, 2019 was €1,027 million, a 2.8% decrease compared with the €1,056 million recorded for the six months ended June 30, 2018.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the six months ended June 30, 2019 was an expense of €292 million, a 5.5% decrease compared with the €309 million expense recorded for the six months ended June 30, 2018 mainly as a result of the lower operating profit before tax and the implementation of the Amendment to IAS 12. Tax expense amounted to 28.4% of operating profit before tax for the six months ended June 30, 2019 and 29.2% for the six months ended June 30, 2018.

52


 

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the six months ended June 30, 2019 amounted to €734 million, a 1.7% decrease compared with the €746 million recorded for the six months ended June 30, 2018.

UNITED STATES

 

For the six months ended June 30,

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Net interest income

1,217

1,082

12.6

Net fees and commissions

320

302

5.8

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

79

49

61.8

Other operating income and expense, net

(1)

4

n.m. (3)

Income and expense on insurance and reinsurance contracts

-

-

-

Gross income

1,615

1,437

12.4

Administration costs

(849)

(807)

5.2

Depreciation and amortization

(110)

(86)

28.3

Net margin before provisions (2)

655

544

20.5

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(286)

(63)

n.m. (3)

Provisions or reversal of provisions and other results

(6)

12

n.m. (3)

Operating profit/(loss) before tax

363

493

(26.3)

Tax expense or income related to profit or loss from continuing operations

(67)

(108)

(38.4)

Profit from continuing operations

297

385

(22.9)

Profit from corporate operations, net

-

-

-

Profit

297

385

(22.9)

Profit attributable to non-controlling interests

-

-

-

Profit attributable to parent company

297

385

(22.9)

(1)   Includes: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(3)   Not meaningful.

In the six months ended June 30, 2019 the U.S. dollar appreciated 7.2% against the euro in average terms, resulting in a positive exchange rate effect on our consolidated income statement for the six months ended June 30, 2019 and in the results of operations of the United States operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2019 amounted to €1,217 million, a 12.6% increase compared with the €1,082 million recorded for the six months ended June 30, 2018, mainly due to higher interest rates as a result of the impact of the increases in the Federal Reserve Board benchmark interest rate and the appreciation of the U.S. dollar, partially offset by higher funding costs. The net interest margin over total average assets of this operating segment amounted to 1.45% for the six months ended June 30, 2019, compared with 1.46% for the six months ended June 30, 2018.

53


 

Net fees and commissions

Net fees and commissions of this operating segment for the six months ended June 30, 2019 amounted to €320 million, a 5.8% increase compared with the €302 million recorded for the six months ended June 30, 2018, mainly due to higher service charges on deposit accounts, and the appreciation of the U.S. dollar against the euro.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains (losses) on financial assets and liabilities and exchange differences of this operating segment for the six months ended June 30, 2019 was a net gain of €79 million, a 61.8% increase compared with the €49 million gain recorded for the six months ended June 30, 2018, mainly as a result of higher ALCO portfolio sales in the first semester of 2019 and the appreciation of the U.S. dollar against the euro.

Other operating income and expense, net

Other net operating expense of this operating segment for the six months ended June 30, 2019 amounted to €1 million, compared with the €4 million income recorded for the six months ended June 30, 2018.

Administration costs

Administration costs of this operating segment for the six months ended June 30, 2019 amounted to €849 million, a 5.2% increase compared with the €807 million recorded for the six months ended June 30, 2018.

Depreciation and amortization

Depreciation and amortization for the six months ended June 30, 2019 was €110 million, a 28.3% increase compared with the €86 million recorded for the six months ended June 30, 2018 mainly as a result of the implementation of IFRS 16.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the six months ended June 30, 2019 was a €286 million expense compared with the €63 million expense recorded for the six months ended June 30, 2018, mainly as a result of higher losses within the consumer direct loan portfolio as well as an increase in the allowance on individually evaluated nonperforming loans in the commercial, financial and agricultural loan portfolio. In addition, the first semester of 2018 was positively impacted by the release of provisions related to the hurricanes of the previous year.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the six months ended June 30, 2019 were a €6 million expense, compared with the €12 million income recorded for the six months ended June 30, 2018.

Operating profit/ (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the six months ended June 30, 2019 was €363 million, a 26.3% decrease compared with the €493 million of operating profit recorded for the six months ended June 30, 2018.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the six months ended June 30, 2019 was €67 million, a 38.4% decrease compared with the €108 million expense recorded for the six months ended June 30, 2018, mainly as a result of the lower operating profit before tax. Tax expense amounted to 18.3% of operating profit before tax for the six months ended June 30, 2019, compared with 21.8% for the six months ended June 30, 2018.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the six months ended June 30, 2019 amounted to €297 million, a 22.9% decrease compared with the €385 million recorded for the six months ended June 30, 2018.

 

54


 

MEXICO

 

For the six months ended June 30,

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Net interest income

3,042

2,648

14.9

Net fees and commissions

621

589

5.5

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

135

144

(6.0)

Other operating income and expense, net

(132)

(116)

13.1

Income and expense on insurance and reinsurance contracts

233

200

16.7

Gross income

3,901

3,465

12.6

Administration costs

(1,118)

(1,034)

8.1

Depreciation and amortization

(172)

(122)

41.3

Net margin before provisions (2)

2,611

2,309

13.1

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(818)

(708)

15.5

Provisions or reversal of provisions and other results

(10)

54

n.m. (3)

Operating profit/(loss) before tax

1,783

1,654

7.8

Tax expense or income related to profit or loss from continuing operations

(496)

(454)

9.2

Profit from continuing operations

1,287

1,200

7.2

Profit from corporate operations, net

-

-

-

Profit

1,287

1,200

7.2

Profit attributable to non-controlling interests

-

-

-

Profit attributable to parent company

1,287

1,200

7.2

(1)   Includes: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(3)   Not meaningful.

In the six months ended June 30, 2019, the Mexican peso appreciated 6.6% against the euro in average terms compared with the same period of the prior year, resulting in a positive exchange rate effect on our consolidated income statement for the six months ended June 30, 2019 and in the results of operations of the Mexico operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2019 amounted to €3,042 million, a 14.9% increase compared with the €2,648 million recorded for the six months ended June 30, 2018, mainly as a result of higher net revenues from the retail portfolio, lower cost of deposits, the increase in the average volume of loans and advances to customers and the appreciation of the Mexican peso against the euro. The net interest margin over total average assets of this operating segment amounted to 2.97% for the six months ended June 30, 2019, compared with 2.81% for the six months ended June 30, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the six months ended June 30, 2019 amounted to €621 million, a 5.5% increase compared with the €589 million recorded for the six months ended June 30, 2018, mainly as a result of the appreciation of the Mexican peso. At a constant exchange rate, there was a 1.0% decrease.

55


 

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the six months ended June 30, 2019 were €135 million, a 6.0% decrease compared with the €144 million gain recorded for the six months ended June 30, 2018, mainly as a result of lower income from Global Markets, offset in part by the appreciation of the Mexican peso.

Other operating income and expense, net

Other operating income and expense, net of this operating segment for the six months ended June 30, 2019 was a net expense of €132 million, a 13.1% increase compared with the €116 million net expense recorded for the six months ended June 30, 2018, mainly as a result of the appreciation of the Mexican peso and the higher contribution to the Deposit Guarantee Fund.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the six months ended June 30, 2019 was €233 million, a 16.7% increase compared with the €200 million net income recorded for the six months ended June 30, 2018, mainly as a result of the performance of savings products and the appreciation of the Mexican peso.

Administration costs

Administration costs of this operating segment for the six months ended June 30, 2019 were €1,118 million, an 8.1% increase compared with the €1,034 million recorded for the six months ended June 30, 2018, mainly as a result of the appreciation of the Mexican peso and to the increase in personnel expenses. At a constant exchange rate, administration costs increased by 1.4%, which was below Mexico’s inflation rate for the period.

Depreciation and amortization

Depreciation and amortization for the six months ended June 30, 2019 was €172 million, a 41.3% increase compared with the €122 million recorded for the six months ended June 30, 2018 mainly as a result of the implementation of IFRS 16 on January 1, 2019.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the six months ended June 30, 2019 was a €818 million expense, a 15.5% increase compared with the €708 million expense recorded for the six months ended June 30, 2018. At a constant exchange rate, there was an 8.4% increase in impairment losses on financial assets mainly as a result of higher loan-loss provisions for large customers and to uneven market conditions and the appreciation of the Mexican peso.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the six months ended June 30, 2019 were a €10 million expense compared with the €54 million income recorded for the six months ended June 30, 2018. During the first six months of 2018, non-current income was recognized due to the sale of the stake Mexico BBVA held in real estate developments.

Operating profit/ (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the six months ended June 30, 2019 was €1,783 million, a 7.8% increase compared with the €1,654 million of operating profit recorded for the six months ended June 30, 2018.

56


 

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the six months ended June 30, 2019 was €496 million, a 9.2% increase compared with the €454 million expense recorded for the six months ended June 30, 2018, mainly as a result of higher operating profit before tax. Consequently, the tax expense amounted to 27.8% of operating profit before tax for the six months ended June 30, 2018, and 27.5% for the six months ended June 30, 2018.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the six months ended June 30, 2019 amounted to €1,287 million, a 7.2% increase compared with the €1,200 million recorded for the six months ended June 30, 2018.

TURKEY

 

For the six months ended June 30,

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Net interest income

1,353

1,510

(10.4)

Net fees and commissions

360

371

(2.9)

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

(65)

4

n.m. (2)

Other operating income and expense, net

6

11

(48.6)

Income and expense on insurance and reinsurance contracts

24

28

(14.5)

Gross income

1,677

1,924

(12.8)

Administration costs

(508)

(601)

(15.4)

Depreciation and amortization

(86)

(78)

9.8

Net margin before provisions (3)

1,084

1,245

(13.0)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(337)

(315)

6.8

Provisions or reversal of provisions and other results

(21)

34

n.m. (2)

Operating profit/(loss) before tax

726

964

(24.7)

Tax expense or income related to profit or loss from continuing operations

(153)

(210)

(27.2)

Profit from continuing operations

573

754

(24.1)

Profit from corporate operations, net

-

-

-

Profit

573

754

(24.1)

Profit attributable to non-controlling interests

(291)

(383)

(23.9)

Profit attributable to parent company

282

372

(24.2)

 (1)   Includes: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   Not meaningful.

(3)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

The Turkish lira depreciated 22.0% against the euro in average terms in the six months ended June 30, 2019, resulting in a negative exchange rate effect on our consolidated income statement for the six months ended June 30, 2019 and in the results of operations of the Turkey operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

57


 

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2019 amounted to €1,353 million, a 10.4% decrease compared with the €1,510 million recorded for the six months ended June 30, 2018, mainly as a result of the depreciation of the Turkish lira. At a constant exchange rate, there was a 15.0% increase in net interest income due to the higher income from inflation-linked bonds and, to a lesser extent, positive ALM portfolio management, despite the increase in cost of funding. The net interest margin over total average assets of this operating segment amounted to 2.04% for the six months ended June 30, 2019, compared with 1.99% for the six months ended June 30, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the six months ended June 30, 2019 amounted to €360 million, a 2.9% decrease compared with the €371 million recorded for the six months ended June 30, 2018, mainly as a result of the depreciation of the Turkish lira. At a constant exchange rate, there was a 24.5% increase mainly as a result of the positive performance in payment systems and an increase in fees and commissions related to money transfers and non-cash loans.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net losses on financial assets and liabilities and exchange differences of this operating segment for the six months ended June 30, 2019 were a €65 million loss, compared with the €4 million gain recorded for the six months ended June 30, 2018, mainly as a result of uneven market performance in the first semester of 2019.

Other operating income and expense, net

Other net operating income of this operating segment for the six months ended June 30, 2019 was €6 million compared with the €11 million of net income recorded for the six months ended June 30, 2018.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the six months ended June 30, 2019 was €24 million compared with the €28 million income recorded for the six months ended June 30, 2018, mainly as a result of the depreciation of the Turkish lira.

Administration costs

Administration costs of this operating segment for the six months ended June 30, 2019 amounted to €508 million, a 15.4% decrease compared with the €601 million recorded for the six months ended June 30, 2018, mainly as a result of the depreciation of the Turkish lira and the implementation of IFRS 16. At a constant exchange rate, administration costs increased by 8.5%, mainly as a result of the 19.9% inflation rate in the six months ended June 30, 2019.

Depreciation and amortization

Depreciation and amortization for the six months ended June 30, 2019 was €86 million, a 9.8% increase compared with the €78 million recorded for the six months ended June 30, 2018 mainly as a result of the implementation of IFRS 16.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the six months ended June 30, 2019 was a €337 million expense, a 6.8% increase compared with the €315 million expense recorded for the six months ended June 30, 2018, mainly as a result of higher impairments relating to macroeconomic scenario adjustments and impairments in the wholesale portfolio.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the six months ended June 30, 2019 were a €21 million expense compared with the €34 million income recorded for the six months ended June 30, 2018.

58


 

Operating profit/(loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the six months ended June 30, 2019 was €726 million, a 24.7% decrease compared with the €964 million of operating profit before tax recorded for the six months ended June 30, 2018.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the six months ended June 30, 2019 was €153 million, a 27.2% decrease compared with the €210 million expense recorded for the six months ended June 30, 2018, mainly as a result of the lower operating profit before tax. Consequently, the effective tax rate amounted to 21.0% of the operating profit before tax for the six months ended June 30, 2019, and 21.8% for the six months ended June 30, 2018.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the six months ended June 30, 2019 amounted to €291 million, a 23.9% decrease compared with the €383 million recorded for the six months ended June 30, 2018, mainly as a result of the depreciation of the Turkish lira against the euro.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the six months ended June 30, 2019 amounted to €282 million, a 24.2% decrease compared with the €372 million recorded for the six months ended June 30, 2018.

SOUTH AMERICA

 

For the six months ended June 30,

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Net interest income

1,613

1,553

3.9

Net fees and commissions

298

321

(6.9)

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

314

219

43.7

Other operating income and expense, net

(285)

(171)

66.6

Income and expense on insurance and reinsurance contracts

54

66

(17.5)

Gross income

1,994

1,987

0.4

Administration costs

(695)

(857)

(18.9)

Depreciation and amortization

(84)

(52)

60.8

Net margin before provisions (2)

1,215

1,078

12.7

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(349)

(321)

9.0

Provisions or reversal of provisions and other results

(19)

(34)

(43.6)

Operating profit/(loss) before tax

847

724

17.0

Tax expense or income related to profit or loss from continuing operations

(271)

(259)

4.8

Profit from continuing operations

576

465

23.8

Profit from corporate operations, net

-

-

-

Profit

576

465

23.8

Profit attributable to non-controlling interests

(171)

(133)

28.9

Profit attributable to parent company

404

332

21.9

(1)   Includes: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

59


 

In the six months ended June 30, 2019, the Argentine peso depreciated by 11.2% against the euro in average terms, compared with the six months ended June 30, 2018. In addition, the Colombian peso depreciated in average terms against the euro compared with the six months ended June 30, 2018, by 4.3%. On the other hand, the Peruvian sol appreciated against the euro in average terms. Overall, changes in exchange rates resulted in a negative exchange rate effect on our consolidated income statement for the six months ended June 30, 2019 and in the results of operations of the South America operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

At year-end 2018, the Argentinian economy was considered to be hyperinflationary as defined by IAS 29 (see “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Hyperinflationary economies” of our 2018 Form 20-F).

In addition, on July 6, 2018 we completed the sale of our 68.19% stake in BBVA Chile. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Sale of BBVA Chile”. 

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2019 amounted to €1,613 million, a 3.9% increase compared with the €1,553 million recorded for the six months ended June 30, 2018, mainly as a result of the growth in the yield on interest-earning assets, particularly in Argentina, the increase in dividend income in Argentina and in the increase average volume of interest-earning assets, particularly in Peru; partially offset by the depreciation of certain currencies of the region against the euro. At constant exchange rates, there was a 12.1% increase. The net interest margin over total average assets of this operating segment amounted to 2.87% for the six months ended June 30, 2019, compared with 2.10% for the six months ended June 30, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the six months ended June 30, 2019 amounted to €298 million, a 6.9% decrease compared with the €321 million recorded for the six months ended June 30, 2018, mainly as a result of the depreciation of certain currencies of the region against the euro. At a constant exchange rate, there was no variation.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the six months ended June 30, 2019 were €314 million, a 43.7% increase compared with the €219 million gain recorded for the six months ended June 30, 2018, mainly as a result of increased profits from the management of securities portfolios, particularly in Argentina, and due to the sale of the stake in Prisma Medios de Pago, S.A..

Other operating income and expense, net

Other net operating expense of this operating segment for the six months ended June 30, 2019 was €285 million, compared with the €171 million expense recorded for the six months ended June 30, 2018, mainly as a result of the effect of the hyperinflation in Argentina.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the six months ended June 30, 2019 was €54 million, a 17.5% decrease compared with the €66 million net income recorded for the six months ended June 30, 2018, mainly as a result of the depreciation of certain currencies of the region against the euro and the sale of the insurance business in Chile

Administration costs

Administration costs of this operating segment for the six months ended June 30, 2019 amounted to €695 million, an 18.9% decrease compared with the €857 million recorded for the six months ended June 30, 2018, mainly as a result of the sale of BBVA Chile in 2018 and the implementation of IFRS 16.

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Depreciation and amortization

Depreciation and amortization for the six months ended June 30, 2019 was €84 million, a 60.8% increase compared with the €52 million recorded for the six months ended June 30, 2018 mainly as a result of higher expense related to software in Peru and the implementation of IFRS 16.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the six months ended June 30, 2019 was a €349 million expense, a 9.0% increase compared with the €321 million expense recorded for the six months ended June 30, 2018, mainly as a result of the deterioration in credit quality

Provisions or reversal of provisions  and other results

Provisions or reversal of provisions and other results of this operating segment for the six months ended June 30, 2019 were a €19 million expense compared with the €34 million expense recorded for the six months ended June 30, 2018, mainly as a result of the reversal of provisions in Peru and the depreciation of certain currencies in the region against the euro.

Operating profit/ (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the six months ended June 30, 2019 was €847 million, a 17.0% increase compared with the €724 million of operating profit recorded for the six months ended June 30, 2018.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the six months ended June 30, 2019 was €271 million, a 4.8 % increase compared with the €259 million expense recorded for the six months ended June 30, 2018, mainly as a result of higher operating profit before tax, offset in part by the implementation of the Amendment to IAS 12. Consequently, the effective tax rate amounted to 32.0% of operating profit before tax for the six months ended June 30, 2019, and 35.7% for the six months ended June 30, 2018.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the six months ended June 30, 2019 amounted to €171 million, a 28.9% increase compared with the €133 million recorded for the six months ended June 30, 2018, due to the higher operating profit before tax.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the six months ended June 30, 2019 amounted to €404 million, a 21.9 % increase compared with the €332 million recorded for the six months ended June 30, 2018.

 

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REST OF EURASIA

 

For the six months ended June 30,

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Net interest income

84

83

2.2

Net fees and commissions

69

79

(12.7)

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

60

55

10.2

Other operating income and expense, net

3

-

n.m. (2)

Income and expense on insurance and reinsurance contracts

3

-

n.m. (2)

Gross income

220

217

1.4

Administration costs

(133)

(137)

(2.7)

Depreciation and amortization

(9)

(3)

183.9

Net margin before provisions (3)

78

77

1.5

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(11)

14

n.m. (2)

Provisions or reversal of provisions and other results

1

2

(41.4)

Operating profit/(loss) before tax

69

93

(26.1)

Tax expense or income related to profit or loss from continuing operations

(13)

(33)

(59.3)

Profit from continuing operations

55

60

(8.0)

Profit from corporate operations, net

-

-

-

Profit

55

60

(8.0)

Profit attributable to non-controlling interests

-

-

-

Profit attributable to parent company

55

60

(8.0)

(1)   Includes: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   Not meaningful.

(3)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2019 amounted to €84 million, a 2.2% increase compared with the €83 million recorded for the six months ended June 30, 2018. The net interest margin over total average assets of this operating segment amounted to 0.42% for the six months ended June 30, 2019 compared with 0.46% for the six months ended June 30, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the six months ended June 30, 2019 amounted to €69 million, a 12.7% decrease compared with the €79 million recorded for the six months ended June 30, 2018, mainly as a result of lower fee and commission income in the branch network in Europe.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the six months ended June 30, 2019 were €60 million, a 10.2% increase compared with the €55 million net gain recorded for the six months ended June 30, 2018, mainly as a result of increased profits from the trading portfolio in the branch network in Europe.

Other operating income and expense, net

Other net operating income of this operating segment for the six months ended June 30, 2019 was €3 million, compared with the nil other net operating income recorded for the six months ended June 30, 2018.

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Administration costs

Administration costs of this operating segment for the six months ended June 30, 2019 amounted to €133 million, a 2.7% decrease compared with the €137 million recorded for the six months ended June 30, 2018.

Depreciation and amortization

Depreciation and amortization for the six months ended June 30, 2019 was €9 million, compared with the €3 million recorded for the six months ended June 30, 2018.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the six months ended June 30, 2019 amounted to impairment of €11 million compared with the €14 million reversal of impairment recorded for the six months ended June 30, 2018.

Provisions or reversal of provisions  and other results

Provisions or reversal of provisions and other results of this operating segment for the six months ended June 30, 2019 were a €1 million income compared with the €2 million income recorded for the six months ended June 30, 2018.

Operating profit/(loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the six months ended June 30, 2019 was €69 million, a 26.1% decrease compared with the €93 million of operating profit recorded for the six months ended June 30, 2018.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the six months ended June 30, 2019 was €13 million, a 59.3% decrease compared with the €33 million expense recorded for the six months ended June 30, 2018.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the six months ended June 30, 2019 amounted to €55 million, an 8.0% decrease compared with the €60 million recorded for the six months ended June 30, 2018.

 

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CORPORATE CENTER

 

For the six months ended June 30,

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Net interest income

(132)

(137)

(4.1)

Net fees and commissions

(44)

(32)

36.6

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

(74)

(58)

27.8

Other operating income and expense, net

24

49

(51.3)

Income and expense on insurance and reinsurance contracts

(10)

(10)

5.9

Gross income

(236)

(188)

25.4

Administration costs

(391)

(328)

19.3

Depreciation and amortization

(91)

(105)

(13.6)

Net margin before provisions (2)

(718)

(621)

15.6

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

-

-

-

Provisions or reversal of provisions and other results

(44)

(77)

(43.3)

Operating profit/(loss) before tax

(762)

(698)

9.1

Tax expense or income related to profit or loss from continuing operations

156

150

3.9

Profit from continuing operations excluding corporate operations

(606)

(548)

10.6

Profit from corporate operations, net

-

-

-

Profit

(606)

(548)

10.6

Profit attributable to non-controlling interests

(10)

(10)

2.4

Profit attributable to parent company

(616)

(558)

10.4

(1)   Includes: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

Net interest income / (expense)

Net interest expense of this operating segment for the six months ended June 30, 2019 was €132 million, a 4.1% decrease compared with the €137 million net expense recorded for the six months ended June 30, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the six months ended June 30, 2019 was an expense of €44 million, a 36.6% increase compared with an expense of €32 million expense recorded for the six months ended June 30, 2018, mainly as a result of lower income from demand accounts in the six months ended 2019.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net losses on financial assets and liabilities and exchange differences of this operating segment for the six months ended June 30, 2019 were €74 million, a 27.8% increase compared with compared with the €58 million expense recorded for the six months ended June 30, 2018, which was affected by changes in exchange rates, impacting on the hedge accounting recorded in the period, and the contribution of industrial and financial transactions for the period ended June 30, 2019.

Other operating income and expense, net

Other net operating income of this operating segment for the six months ended June 30, 2019 was €24 million, compared with the €49 million of net income recorded for the six months ended June 30, 2018, mainly as a result of the lower dividend income from real estate related investees accounted under the equity method.

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Administration costs

Administration costs of this operating segment for the six months ended June 30, 2019 amounted to €391 million, a 19.3% increase compared with the €328 million recorded for the six months ended June 30, 2018, mainly as a result of the increase in holding function expenses, in particular, data and cybersecurity.

Depreciation and amortization

Depreciation and amortization for the six months ended June 30, 2019 was €91 million, a 13.6% decrease compared with the €105 million recorded for the six months ended June 30, 2018 mainly as a result of lower technology expenses.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the six months ended June 30, 2019 were a €44 million expense, a 43.3% decrease compared with the €77 million expense recorded for the six months ended June 30, 2018, which was principally due to the sale of BBVA’s stakes in certain subsidiaries or investees, partially offset by contributions to pension funds associated to the BBVA Group.

Operating profit/ (loss) before tax

As a result of the foregoing, operating loss before tax of this operating segment for the six months ended June 30, 2019 was €762 million, a 9.1% decrease compared with the €698 million loss recorded for the six months ended June 30, 2018.

Tax expense or income related to profit or loss from continuing operations

Tax income related to loss from continuing operations of this operating segment for the six months ended June 30, 2019 amounted to €156 million, compared with the €150 million income recorded for the six months ended June 30, 2018.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the six months ended June 30, 2019 was a loss of €616 million, compared with the €558 million loss recorded for the six months ended June 30, 2018.

 

 

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5B.   Liquidity and Capital Resources

Management of liquidity and funding in BBVA aims to finance the recurring growth of the banking business at suitable maturities and costs, using a wide range of instruments that provide access to a large number of alternative sources of financing, while complying with current regulatory requirements.

Due to its subsidiary-based management model, BBVA Group is one of the few large European banks that follows the Multiple Point of Entry (“MPE”) resolution strategy: the parent company sets the liquidity and risk policies, but subsidiaries (with the exception of BBVA Portugal) are expected to be self-sufficient and responsible for managing their liquidity (taking deposits or accessing the market based on their own ratings), without funds transfers or financing occurring between either the parent company and the subsidiaries or between different subsidiaries. This principle limits the spread of a liquidity crisis among the Group’s different areas and ensures that the cost of liquidity and funding is correctly reflected in the price formation process.

The financial soundness of BBVA Group’s banking entities continues to be based on the funding of lending activity, fundamentally through the use of stable customer funds. During the six months ended June 30, 2019, liquidity conditions remained comfortable across all countries in which the BBVA Group operates:

·          In the Eurozone, the liquidity situation remains satisfactory, with a slight increase in the credit gap over the first six months of the year.

·          In the United States, the liquidity situation is solid. In the first half of 2019, there has been a decrease in the credit gap due primarily to the increase in deposits as a result of deposit-taking campaigns, and a slowdown in lending activity.

·          In Mexico, the liquidity position has been maintained. The credit gap increased slightly in the first half of 2019, affected by the seasonal outflow of deposits, while the loan portfolio remained virtually flat.

·          The liquidity position in Turkey is positive, with an adequate buffer against a possible liquidity stress scenario. The credit gap improved in the first half of 2019, both in terms of the balance sheet in foreign currency, due to a greater contraction of loans than deposits, and in local currency, due to higher growth in deposits than loans

·          In South America, the liquidity position remains comfortable throughout the region. In Argentina, the liquidity situation improved due to moderate growth in lending activity and the increase in deposits.

As of June 30, 2019, the Liquidity Coverage Ratio (“LCR”) in BBVA Group remained above 100% and stood at 132%. All the subsidiaries remained above 100% (Eurozone, 155%; Mexico, 147%; Turkey, 187%; and the United States, 144%). For the calculation of the consolidated ratio we assume that there is no transfer of liquidity among subsidiaries; i.e. excess liquidity levels in our subsidiaries abroad are not considered in the calculation of the consolidated ratio. When considering this excess liquidity levels, the ratio would stand at 163% (31 percentage points above 132%).

The Net Stable Funding Ratio (“NSFR”), defined as the ratio between the amount of stable funding available and the amount of stable funding required, is one of the Basel Committee's essential reforms, and requires banks to maintain a stable funding profile in relation to the composition of their assets and off-balance-sheet activities. This ratio should be at least 100% at all times. At the BBVA Group, the NSFR ratio, calculated according to Basel requirements, remained above 100% throughout the first half of 2019 and stood at 121% as of June 30, 2019. It comfortably exceeded 100% in all subsidiaries (Eurozone 116%, Mexico 131%, United States 111% and Turkey 151%).

The wholesale funding markets in the geographic areas where the Group operates continued to be stable during the six months ended June 30, 2019.

The main transactions carried out by the entities that form part of the BBVA Group during the first six months of 2019 were:

·          Banco Bilbao Vizcaya Argentaria, S.A (“BBVA, S.A.”) carried out two issuances of senior non-preferred debt: the first for €1,000 million with a fixed-rate annual coupon of 1.125% and a maturity period of five years; the second, a green bond (following the first green bond issuance in May 2018), also for €1,000 million, with an annual coupon of 1% and a maturity period of seven years.

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·          Regarding capital issuances, BBVA, S.A. carried out two public issuances: an issuance of preferred securities that may be converted into ordinary BBVA shares (CoCos), registered in the Spanish Securities Market Commission (“CNMV”) for €1,000 million with an annual coupon of 6.0% and amortization option from the fifth year; and a Tier 2 subordinated debt issuance for €750 million, with a maturity period of 10 years, an amortization option in the fifth year, and a coupon of 2.575%.

·          Additionally, in the first half of 2019, the early amortization option for the issuance of CoCos for €1,500 million with a coupon of 7%, issued in February 2014, was exercised; and a Tier 2 subordinated debt issuance for €1,500 million with a coupon of 3.5%, issued in April 2014, was amortized. In June 2019, BBVA, S.A., as the successor to Unnim Banc, S.A.U., exercised the early amortization of the issuance of subordinated bonds, originally issued by Caixa d'Estalvis de Sabadell, for an outstanding nominal amount of €4,878,000.

·          In Mexico, €458 million of senior debt was issued on the local market in two tranches: €229 million with a maturity period of three years at the Interbank Equilibrium Interest Rate (“TIIE”) +28 basis points, and €229 million with a maturity period of eight years at the Mbono rate +80 basis points, obtaining the lowest cost of funds in history in the local market in both maturities.

·          In Turkey, Garanti BBVA issued a Diversified Payment Rights (“DPR”) securitization for $150 million with a maturity period of five years. It also renewed syndicated loans for $784 million.

·          In South America, BBVA Argentina issued negotiable instruments on the local market for an amount equivalent to €33 million, while BBVA Peru issued three-year senior bonds for an amount equivalent to €32 million in the first week of July. Meanwhile, Forum in Chile issued a bond on the local market for an amount equivalent to €108 million.

Customer deposits

Customer deposits (including “Financial liabilities at amortized cost - Customer deposits”, “Financial liabilities designated at fair value through profit or loss – Customer deposits” and “Financial liabilities held for trading – Customer deposits”) amounted to €384,491 million as of June 30, 2019 compared with the €388,682 million as of December 31, 2018, a 1.08% decrease, attributable in part to the depreciation of the Turkish lira and the Argentine peso.

Our customer deposits, excluding assets sold under repurchase agreements amounted to €375,947 million as of June 30, 2019 compared with €374,763 million as of December 31, 2018.

Deposits from credit institutions and central banks

The following table shows amounts due to credit institutions and central banks as of June 30, 2019 and 2018 and as of December 31, 2018:

 

As of June 30,

As of December 31,

As of June 30,

 

2019

2018

2018

 

(In Millions of Euros)

Deposits from credit institutions

62,632

47,665

33,307

Deposits from central banks

37,114

37,792

28,734

Total

99,746

85,457

62,041

Deposits from credit institutions and central banks amounted to €99,746 million as of June 30, 2019 compared with the €85,457 million as of December 31, 2018. The increase as of June 30, 2019 compared with December 31, 2018 related mainly to increase in Spain, Mexico and to a lesser extent, the United States.

Capital markets

We make debt issuances in the domestic and international capital markets in order to finance our activities. As of June 30, 2019 we had €45,979 million of debt certificates, comprising €43,282 million in bonds and debentures and €2,697 million in promissory notes and other securities, compared with €43,477 million, €39,973 million and €3,504 million outstanding, respectively, as of December 31, 2018 (see Note 21.5 to the Unaudited Condensed Interim Consolidated Financial Statements).

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In addition, we had a total of €16,956 million in subordinated debt and subordinated deposits and €153 million in preferred securities outstanding as of June 30, 2019 compared with €17,866 million and €181 million, respectively, as of December 31, 2018.

The following is a breakdown as of June 30, 2019  of the maturities of our debt securities (including bonds) from credit institutions and subordinated liabilities. Regulatory equity instruments have been classified according to their contractual maturity:

 

Demand

Up to 1 Month

1 to 3 Months

3 to 12 Months

1 to 5 Years

Over 5 years

Total

 

(In Millions of Euros)

Debt certificates (including bonds)

-

1,590

2,200

3,603

30,552

12,025

49,971

Subordinated debt, subordinated deposits and preferred securities

-

215

5

1,221

3,044

12,625

17,109

Total

-

1,805

2,205

4,824

33,596

24,650

67,080

Generation of Cash Flow

We operate in Spain, Mexico, Turkey, the United States and over 30 other countries, mainly in Europe, Latin America, and Asia. Our banking subsidiaries around the world, including BBVA Compass, are subject to supervision and regulation by a variety of regulatory bodies relating to, among other things, the satisfaction of different solvency, resolution and/or governance requirements. The obligation to satisfy such requirements may affect the ability of our banking subsidiaries, including BBVA Compass, to transfer funds to us in the form of cash dividends, loans or advances. In addition, under the laws of the various jurisdictions where our subsidiaries, including BBVA Compass, are incorporated, dividends may only be paid out of funds legally available and, in certain cases, subject to the prior approval of the competent regulatory or supervisory authorities. For example, BBVA Compass is incorporated in Alabama and under Alabama law it is not able to pay any dividends without the prior approval of the Superintendent of Banking of Alabama if the dividend would exceed the total net earnings for the year combined with the bank’s retained net earnings of the preceding two years.

Even where any applicable requirements are met and funds are legally available, the relevant regulator could advise against the transfer of funds to us in the form of cash dividends, loans or advances, for prudence reasons or otherwise.

There is no assurance that in the future other similar restrictions will not be adopted or that, if adopted, they will not negatively affect our liquidity. The geographic diversification of our businesses, however, may help to limit the effect on the Group of any restrictions that could be adopted in any given country.

We believe that our working capital is sufficient for our present requirements and to pursue our planned business strategies.

Capital

As of June 30, 2019 and December 31, 2018, equity is calculated in accordance with current regulations on minimum capital base requirements for Spanish credit institutions on both an individual and consolidated basis. These regulations dictate how to calculate equity levels, as well as the various internal capital adequacy assessment processes they should have in place and the information such institutions should disclose to the market.

The minimum capital base requirements established by the current regulations are calculated according to the Group’s exposure to credit and dilution risk, counterparty and liquidity risk relating to the trading portfolio, exchange-rate risk and operational risk. In addition, the Group must fulfill the risk concentration limits established in these regulations and internal corporate governance obligations.

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As of March 1, 2019 BBVA received a communication of the ECB about the results of the Supervisory Review and Evaluation Process (“SREP”). Taking into account the full application of capital buffers since January 1, 2019 and considering the latest capital requirement communicated from the ECB, BBVA is required to maintain:

1.   A CET1 ratio of 9.26% at the consolidated level; and

2.   A total capital ratio of 12.76% at the consolidated level. This total consolidated capital ratio includes (i) the minimum CET1 requirement under Pillar 1 (4.5%); (ii) the additional tier 1 capital (“AT1”) requirement under Pillar 1 (1.5%); (iii) the tier 2 capital requirement under Pillar 1 (2%); (iv) the CET1 capital requirement under Pillar 2 (1.5%); (v) the capital conservation buffer (2.5% of CET1); (vi) the Other Systemic Important Institution buffer (“OSII”) (0.75% of CET1); and (vii) the countercyclical capital buffer (0.01% of CET1).

Our consolidated ratios as of June 30, 2019 and December 31, 2018 were as follows:

 

As of June 30,

As of December 31,

% Change

 

2019

2018

2019-2018

 

(In Millions of Euros, Except Percentages )

CORE CAPITAL (a)

42,328

40,313

5.0

CAPITAL (TIER 1) (b)

48,997

45,947

6.6

OTHER ELIGIBLE CAPITAL (TIER 2) (c)

7,944

8,756

(9.3)

CAPITAL BASE (TIER 1 + TIER 2) (d)

56,941

54,703

4.1

RISK WEIGHTED ASSETS (RWA) (e)

360,069

348,264

3.4

BIS RATIO (d)/(e)

15.81%

15.71%

 

CORE CAPITAL (a)/ (e)

11.76%

11.58%

 

TIER 1 (b)/ (e)

13.61%

13.19%

 

TIER 2 (c)/(e)

2.21%

2.51%

 

As of June 30, 2019, the Group’s CET1 phased-in ratio was 11.8%. The increase by +18 basis points in the first semester of 2019 was supported by the recurring organic capital generation and the positive evolution of the market.

Risk-weighted assets increased by over €11,700 million, mainly as a result of activity growth, primarily in emerging markets, and accounting and regulatory impacts (IFRS 16 and  Targeted Review of Internal Models (“TRIM”)) which had an aggregate impact of approximately €7,300 million (-24 basis points in CET1 ratio). In addition, there was a decrease in risk-weighted assets of approximately, €1,500 million (+5 basis points in CET1 ratio) as a result of the effect of the EU Commission´s decision on March 29, 2019 that the supervisory and regulatory frameworks applicable to credit institutions in Argentina should be considered as equivalent to the EU legal framework for the purposes of Regulation (EU) No 575/2013.

Regarding capital issuances, BBVA S.A. conducted two capital issuances: the issuance of preferred securities that may be converted into ordinary BBVA shares (CoCos), registered in the Spanish Securities Market Commission (CNMV) for €1,000 million, with an annual coupon of 6.0% and an amortization option from the fifth year; and a Tier 2 subordinated debt issue of €750 million, with a maturity period of 10 years, amortization option in the fifth year, and a coupon of 2.575%. In this regard, the Royal Decree Law 309/2019, of April 26, which partially develops Law 5/2019, of March 15, regulating real estate credit contracts and other measures in financial matters, eliminates the obligation in Spain to obtain a prior approval of the supervisor in order to compute additional level 1 capital and level 2 capital instruments.

The Group continued in the semester with its program to meet the requirements of the minimum requirement for own funds and eligible liabilities (“MREL”) published in May 2018, by closing two public issues of senior non-preferred debt, for a total of €2,000 million, one of them of €1,000 million in green bonds. BBVA estimates that it meets the MREL requirement.

On the other hand, the options for early amortization of three issues were executed: one CoCos issuance, for €1,500 million and 7% coupon issued in February 2014; another issuance of Tier 2 subordinated debt, for €1.500 million and 3.5% coupon, issued in April 2014 and amortized in April 2019; and another Tier 2 issued in June 2009 by Caixa d'Estalvis de Sabadell with an outstanding nominal amount of 4,878,000 and amortized in June 2019.

69


 

As a result thereof, the phased-in CET1 ratio stood at 11.8% as of June 30, 2019, Tier 1 capital stood at 13.6% and Tier 2 at 2.2%, resulting in a total capital ratio of 15.8%.

These levels are above the requirements established by the supervisor in its SREP letter, applicable in 2019. Since March 1, 2019, at consolidated level, this requirement has been established at 9.26% for the CET1 ratio and 12.76% for the total capital ratio. Its variation compared to 2018 is explained by the end of the transitional period for implementation of capital conservation buffers and the capital buffer applicable to Other Systemically Important Institutions, as well as the progression of the countercyclical capital buffer. For its part, the CET1 of Pillar 2 (P2R) requirement remains unchanged at 1.5%.

5E.   Off-Balance Sheet Arrangements

In addition to loans, the following amounts of off-balance sheet arrangements were outstanding as of the dates indicated:

 

As of June 30,

As of December 31,

 

2019

2018

 

(in Millions of Euros)

 

 

 

Bank guarantees

38,972

40,227

Letters of credit

6,678

7,347

Total financial guarantees given

45,650

47,575

 

In addition to the off-balance sheet arrangements described above, the following tables provide information regarding commitments to extend credit and assets under management as of the dates indicated:

 

As of June 30,

As of December 31,

 

2019

2018

 

(In Millions of Euros)

Credit institutions

9,966

9,635

Government and other government agencies

1,691

2,318

Other resident sectors

50,435

48,600

Non-resident sector

60,845

58,405

Total loan commitments

122,938

118,959

Total loan commitments and financial guarantees

168,587

166,534

 

 

As of June 30,

 

As of December 31,

 

2019

2018

 

(In Millions of Euros)

Mutual funds

65,681

61,393

Pension funds

34,960

33,807

Other resources

3,162

2,949

Total assets under management

103,804

98,150

See Note 30 to the Unaudited Condensed Interim Consolidated Financial Statements for additional information regarding our off-balance sheet arrangements.

 

70


 

 

 

 

 

 

 

Unaudited Condensed Interim Consolidated Financial Statements as of and for the six months ended June 30, 2019

 

 

 

 

 

 

  

 

 


 

Contents

UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE ACCOMPANYING UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1.

Introduction, basis for the presentation of the interim Consolidated Financial Statements and other information

F-11

2.

Principles of consolidation, accounting policies and measurement bases applied and recent IFRS pronouncements

F-13

3.

BBVA Group

F-15

4.

Shareholder remuneration system

F-16

5.

Operating segment reporting

F-16

6.

Risk management

F-18

7.

Fair value of financial instruments

F-29

8.

Cash, cash balances at central banks and other demands deposits

F-31

9.

Financial assets and liabilities held for trading

F-31

10.

Non-trading financial assets mandatorily at fair value through profit or loss

F-32

11.

Financial assets and liabilities designated at fair value through profit or loss

F-32

12.

Financial assets at fair value through other comprehensive income

F-32

13.

Financial assets at amortized cost

F-37

14.

Hedging derivatives and fair value changes of the hedged items in portfolio hedges of interest rate risk

F-37

15.

Investments in joint ventures, associates

F-37

16.

Tangible assets

F-38

17.

Intangible assets

F-38

18.

Tax assets and liabilities

F-39

19.

Other assets and liabilities

F-40

20.

Non-current assets and disposal groups held for sale

F-40

21.

Financial liabilities at amortized cost

F-40

22.

Assets and liabilities under insurance and reinsurance contracts

F-45

23.

Provisions

F-45

24.

Post-employment and other employee benefit commitments

F-46

25.

Common stock

F-46

26.

Retained earnings, revaluation reserves and other reserves

F-46

27.

Accumulated other comprehensive income (loss)

F-47

28.

Non-controlling interest

F-47

29.

Capital base and capital management

F-48

30.

Commitments and guarantees given

F-49

31.

Other contingent assets and liabilities

F-50

32.

Net interest income

F-50

33.

Dividend income

F-50

34.

Share of profit or loss of entities accounted for using the equity method

F-51

35.

Fee and commission income and expense

F-51

36.

Gains (losses) on financial assets and liabilities, net and exchange differences

F-52

37.

Other operating income and expense

F-52

38.

Income and expense from insurance and reinsurance contracts

F-54

 

 

 

F-1 


 

 

39.

Administration costs

F-54

40.

Depreciation and amortization

F-55

41.

Provisions or (reversal) of provisions

F-55

42.

Impairment or (reversal) of impairment on financial assets not measured at fair value through profit or loss

F-56

43.

Impairment or (reversal) of impairment on non-financial assets

F-56

44.

Gains (losses) on derecognition of non-financial assets and subsidiaries, net

F-56

45.

Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

F-56

46.

Related-party transactions

F-57

47.

Remuneration and other benefits to the Board of Directors and to the members of the Bank’s Senior Management

F-59

48.

Other information

F-62

49.

Subsequent events

F-63

 

 

 

 

APPENDICES

 

 
 

APPENDIX I. Quantitative information on refinancing and restructuring operations and other requirement under Bank of Spain Circular 6/2012

F-65

 

APPENDIX II. Additional information on risk concentration

F-71

 

 

 

F-2 


 

Unaudited consolidated balance sheets as of June 30, 2019 and December 31, 2018

ASSETS (Millions of Euros)

 

Notes

June 2019

December 2018

CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEMAND DEPOSITS

8

44,565

58,196

FINANCIAL ASSETS HELD FOR TRADING

9

105,369

90,117

     Derivatives

 

30,414

30,536

     Equity instruments

 

5,555

5,254

     Debt securities

 

32,274

25,577

     Loans and advances to central banks

 

244

2,163

     Loans and advances to credit institutions

 

24,493

14,566

     Loans and advances to customers

 

12,388

12,021

NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS

10

4,918

5,135

     Equity instruments

 

3,711

3,095

     Debt securities

 

155

237

     Loans and advances to customers

 

1,052

1,803

FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

11

1,403

1,313

     Equity instruments

 

-

-

     Debt securities

 

1,403

1,313

     Loans and advances

 

-

-

FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

12

63,364

56,337

     Equity instruments

 

2,613

2,595

     Debt securities

 

60,718

53,709

     Loans and advances to credit institutions

 

33

33

FINANCIAL ASSETS AT AMORTIZED COST

13

430,930

419,660

     Debt securities

 

37,354

32,530

     Loans and advances to central banks

 

5,575

3,941

     Loans and advances to credit institutions

 

10,846

9,163

     Loans and advances to customers

 

377,155

374,027

HEDGING DERIVATIVES

14

3,105

2,892

FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK

14

40

(21)

JOINT VENTURES AND ASSOCIATES

15

1,638

1,578

     Joint ventures

 

179

173

     Associates

 

1,459

1,405

INSURANCE AND REINSURANCE ASSETS

22

371

366

TANGIBLE ASSETS

16

10,302

7,229

     Property, plant and equipment

 

10,084

7,066

        For own use

 

9,808

6,756

        Other assets leased out under an operating lease

 

276

310

     Investment properties

 

218

163

INTANGIBLE ASSETS

17

8,262

8,314

     Goodwill

 

6,203

6,180

     Other intangible assets

 

2,059

2,134

TAX ASSETS

18

17,401

18,100

     Current

 

1,882

2,784

     Deferred

 

15,519

15,316

OTHER ASSETS

19

4,454

5,472

   Insurance contracts linked to pensions

 

-

-

   Inventories

 

592

635

    Other

 

3,861

4,837

NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE

20

1,505

2,001

TOTAL ASSETS

 

697,626

676,689

The accompanying Notes 1 to 49 are an integral part of the Unaudited Condensed Interim Consolidated Financial Statements.

F-3 


 

Unaudited consolidated balance sheets as of June 30, 2019 and December 31, 2018

LIABILITIES AND EQUITY (Millions of Euros)

 

Notes

June 2019

December 2018

FINANCIAL LIABILITIES HELD FOR TRADING

9

91,358

80,774

     Trading derivatives

 

31,817

31,815

     Short positions

 

12,864

11,025

     Deposits from central banks

 

8,556

10,511

     Deposits from credit institutions

 

29,733

15,687

     Customer deposits

 

8,388

11,736

     Debt certificates

 

-

-

     Other financial liabilities

 

-

-

FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

11

8,922

6,993

     Deposits from central banks

 

-

-

     Deposits from credit institutions

 

-

-

     Customer deposits

 

999

976

     Debt certificates

 

3,992

2,858

     Other financial liabilities

 

3,931

3,159

     Memorandum item: Subordinated liabilities

 

-

-

FINANCIAL LIABILITIES AT AMORTIZED COST

21

513,937

509,185

     Deposits from central banks

 

28,558

27,281

     Deposits from credit institutions

 

32,899

31,978

     Customer Deposits

 

375,104

375,970

     Debt certificates

 

62,685

61,112

     Other financial liabilities

 

14,692

12,844

    Memorandum item: Subordinated liabilities

 

17,109

18,047

HEDGING DERIVATIVES

14

3,281

2,680

FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK

14

-

-

LIABILITIES UNDER INSURANCE AND REINSURANCE CONTRACTS

22

10,634

9,834

PROVISIONS

23

6,631

6,772

     Provisions for pensions and similar obligations

 

4,745

4,787

     Other long term employee benefits

 

58

62

     Provisions for taxes and other legal contingencies

 

689

686

     Provisions for contingent risks and commitments

 

639

636

     Other provisions

 

500

601

TAX LIABILITIES

18

3,397

3,276

     Current

 

1,074

1,230

     Deferred

 

2,323

2,046

OTHER LIABILITIES

19

4,776

4,301

LIABILITIES INCLUDED IN DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE

 

-

-

TOTAL LIABILITIES

 

642,936

623,814

The accompanying Notes 1 to 49 are an integral part of the Unaudited Condensed Interim Consolidated Financial Statements.

 

F-4 


 

Unaudited consolidated balance sheets as of June 30, 2019 and December 31, 2018

LIABILITIES AND EQUITY (Continued) (Millions of Euros)

 

Notes

June 2019

December 2018

SHAREHOLDERS’ FUNDS

 

55,774

54,326

Capital

25

3,267

3,267

Paid up capital

 

3,267

3,267

Unpaid capital which has been called up

 

-

-

Share premium

 

23,992

23,992

Equity instruments issued other than capital

 

-

-

Other equity instruments

 

43

50

Retained earnings

26

26,428

23,018

Revaluation reserves

26

1

3

Other reserves

26

(94)

(58)

Reserves or accumulated losses of investments in subsidiaries, joint ventures and associates

 

(94)

(58)

Other

 

-

-

Less: Treasury shares

 

(99)

(296)

Profit or loss attributable to owners of the parent

 

2,442

5,324

Less: Interim dividends

 

(208)

(975)

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

27

(6,923)

(7,215)

Items that will not be reclassified to profit or loss

 

(1,531)

(1,284)

Actuarial gains or losses on defined benefit pension plans

 

(1,393)

(1,245)

Non-current assets and disposal groups classified as held for sale

 

-

-

 Share of other recognized income and expense of investments in subsidiaries, joint ventures and associates

 

-

-

Fair value changes of equity instruments measured at fair value through other comprehensive income

 

(164)

(155)

Hedge ineffectiveness of fair value hedges for equity instruments measured at fair value through other comprehensive income

 

-

-

Fair value changes of equity instruments measured at fair value through other comprehensive income (hedged item)

 

-

-

Fair value changes of equity instruments measured at fair value through other comprehensive income (hedging instrument)

 

-

-

Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk

 

25

116

Items that may be reclassified to profit or loss

 

(5,392)

(5,932)

Hedge of net investments in foreign operations (effective portion)

 

(537)

(218)

Foreign currency translation

 

(6,535)

(6,643)

Hedging derivatives. Cash flow hedges (effective portion)

 

50

(6)

Fair value changes of debt instruments measured at fair value through other comprehensive income

 

 

1,639

943

Hedging instruments (non-designated items)

 

-

-

Non-current assets and disposal groups classified as held for sale

 

-

1

Share of other recognized income and expense of investments in subsidiaries, joint ventures and associates

 

(9)

(9)

MINORITY INTERESTS (NON-CONTROLLING INTEREST)

28

5,839

5,764

Accumulated other comprehensive income (loss)

 

(3,527)

(3,236)

Other

 

9,366

9,000

TOTAL EQUITY

 

54,690

52,874

TOTAL EQUITY AND TOTAL LIABILITIES

 

697,626

676,689

0

0

0

0

MEMORANDUM  ITEM (OFF-BALANCE SHEET EXPOSURES)  (Millions of Euros)

 

 

 

0

Notes

June 2019

December 2018

Loan commitments given

30

122,938

118,959

Financial guarantees given

30

15,526

16,454

Other commitments given

30

36,158

35,098

The accompanying Notes 1 to 49 are an integral part of the Unaudited Condensed Interim Consolidated Financial Statements.

 

F-5 


 

Unaudited consolidated income statements for the six months ended June 30, 2019 and 2018

CONSOLIDATED INCOME STATEMENTS (Millions of Euros)

 

Notes

June 2019

June 2018

Interest and other income

32.1

15,678

14,418

Interest expense

32.2

(6,691)

(5,828)

NET INTEREST INCOME

 

8,987

8,590

Dividend income

33

103

83

Share of profit or loss of entities accounted for using the equity method

34

(19)

13

Fee and commission income

35

3,661

3,553

Fee and commission expense

35

(1,191)

(1,073)

Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net

36

67

130

Gains (losses) on financial assets and liabilities held for trading, net

36

173

329

Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net

36

98

3

Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net

36

(3)

107

Gains (losses) from hedge accounting, net

36

73

51

Exchange differences, net

36

134

74

Other operating income

37

337

554

Other operating expense

37

(995)

(1,062)

Income from insurance and reinsurance contracts

38

1,547

1,601

Expense from insurance and reinsurance contracts

38

(983)

(1,091)

GROSS INCOME

0

11,989

11,863

Administration costs

0

(5,084)

(5,297)

     Personnel expense

39.1

(3,131)

(3,104)

     Other administrative expense

39.2

(1,953)

(2,193)

Depreciation and amortization

40

(790)

(599)

Provisions or reversal of provisions

41

(261)

(184)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

42

(1,777)

(1,606)

     Financial assets measured at amortized cost

0

(1,772)

(1,618)

     Financial assets at fair value through other comprehensive income

0

(5)

12

NET OPERATING INCOME

0

4,077

4,177

Impairment or reversal of impairment of investments in subsidiaries, joint ventures and associates

0

-

-

Impairment or reversal of impairment on non-financial assets

43

(44)

-

     Tangible assets

0

(30)

(18)

     Intangible assets

0

(1)

(3)

     Other assets

0

(13)

21

Gains (losses) on derecognition of non financial assets and subsidiaries, net

44

8

80

Negative goodwill recognized in profit or loss

 

-

-

Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations   

45

11

29

PROFIT OR LOSS BEFORE TAX FROM CONTINUING OPERATIONS

49.1

4,052

4,286

Tax expense or income related to profit or loss from continuing operations

0

(1,136)

(1,222)

PROFIT OR LOSS AFTER TAX FROM CONTINUING OPERATIONS

0

2,916

3,063

Profit or loss after tax from discontinued operations, net

0

-

-

PROFIT FOR THE PERIOD

 

2,916

3,063

Attributable to minority interest (non-controlling interest)

28

475

528

Attributable to owners of the parent

48.1

2,442

2,536

0

0

0

0

0

0

June 2019

June 2018

EARNINGS PER SHARE  (Euros)

0

0.34

0.36

     Basic earnings per share from continued operations

0

0.34

0.36

     Diluted earnings per share from continued operations

0

0.34

0.36

     Basic earnings per share from discontinued operations

0

-

-

     Diluted earnings per share from discontinued operations

0

-

-

The accompanying Notes 1 to 49 are an integral part of the Unaudited Condensed Interim Consolidated Financial Statements.

 

F-6 


 

Unaudited consolidated statements of recognized income and expenses for the six months ended June 30, 2019 and 2018

CONSOLIDATED STATEMENTS OF RECOGNIZED INCOME AND EXPENSES (Millions of Euros)

 

June 2019

June 2018

PROFIT RECOGNIZED IN INCOME STATEMENT

2,916

3,063

OTHER RECOGNIZED INCOME (EXPENSE)

2

(1,399)

ITEMS NOT SUBJECT TO RECLASSIFICATION TO INCOME STATEMENT

(242)

(168)

Actuarial gains and losses from defined benefit pension plans

(208)

(29)

Non-current assets and disposal groups held for sale

-

-

Share of other recognized income and expense of entities accounted for using the equity method

-

-

Fair value changes of equity instruments measured at fair value through other comprehensive income, net

4

(193)

Gains or losses from hedge accounting of equity instruments at fair value through other comprehensive income, net

-

-

Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk

(130)

98

Income tax related to items not subject to reclassification to income statement

92

(44)

ITEMS SUBJECT TO RECLASSIFICATION TO INCOME STATEMENT

244

(1,230)

Hedge of net investments in foreign operations (effective portion)

(327)

(69)

Valuation gains or losses taken to equity

(327)

(121)

Transferred to profit or loss

-

-

Other reclassifications

-

52

Foreign currency translation

(167)

(794)

Valuation gains or losses taken to equity

(167)

(708)

Transferred to profit or loss

-

-

Other reclassifications

-

(86)

Cash flow hedges (effective portion)

57

(60)

Valuation gains or losses taken to equity

75

(106)

Transferred to profit or loss

(18)

46

Transferred to initial carrying amount of hedged items

-

-

Other reclassifications

-

-

Debt securities at fair value through other comprehensive income

975

(441)

Valuation gains or losses taken to equity

997

(350)

Transferred to profit or loss

(23)

(91)

Other reclassifications

-

-

Non-current assets and disposal groups held for sale

(1)

20

Valuation gains or losses taken to equity

(1)

(14)

Transferred to profit or loss

-

-

Other reclassifications

-

35

Entities accounted for using the equity method

1

-

Income tax relating to items subject to reclassification to income statements

(293)

113

TOTAL RECOGNIZED INCOME/EXPENSES

2,918

1,664

Attributable to minority interest (non-controlling interests)

183

(199)

Attributable to the parent company

2,735

1,863

The accompanying Notes 1 to 49 are an integral part of the Unaudited Condensed Interim Consolidated Financial Statements.

 

F-7 


 

Unaudited consolidated statements of changes in equity for the six months ended June 30, 2019 and 2018

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Millions of Euros)

 

Capital

(Note 25)

Share Premium

Equity instruments issued other than capital

Other Equity

 

Retained earnings

(Note 26)

Revaluation reserves

 (Note 26)

Other reserves

(Note 26)

(-) Treasury shares

Profit or loss attributable to owners of the parent

(-) Interim dividends

Accumulated other comprehensive income

 (Note 27)

Non-controlling interest

Total

JUNE 2019

Valuation adjustments (Note 28)

Other

(Note 28)

Balances as of January 1, 2019

3,267

23,992

-

50

23,017

3

(57)

(296)

5,324

(975)

(7,215)

(3,236)

9,000

52,874

Total income/expense recognized

-

-

-

-

-

-

-

-

2,442

-

293

(291)

475

2,918

Other changes in equity

-

-

-

(7)

3,411

(1)

(37)

197

(5,324)

767

-

-

(108)

(1,103)

Issuances of common shares

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Issuances of preferred shares

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Issuance of other equity instruments

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Settlement or maturity of other equity instruments issued

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Conversion of debt on equity

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Common Stock reduction

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Dividend distribution

-

-

-

-

(1,060)

-

(3)

-

-

-

-

-

(138)

(1,201)

Purchase of treasury shares

-

-

-

-

-

-

-

(591)

-

-

-

-

-

(591)

Sale or cancellation of treasury shares

-

-

-

-

18

-

-

788

-

-

-

-

-

806

Reclassification of other equity instruments to financial liabilities

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Reclassification of financial liabilities to other equity instruments

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Transfers between total equity entries

-

-

-

-

4,387

(1)

(37)

-

(5,324)

975

-

-

-

-

Increase/Reduction of equity due to business combinations

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Share based payments

-

-

-

(3)

-

-

-

-

-

-

-

-

-

(3)

Other increases or (-) decreases in equity

-

-

-

(4)

65

-

3

-

-

(208)

-

-

30

(113)

Balances as of June 30, 2019

3,267

23,992

-

43

26,428

1

(94)

(99)

2,442

(208)

(6,923)

(3,527)

9,366

54,690

The accompanying Notes 1 to 49 are an integral part of the Unaudited Condensed Interim Consolidated Financial Statements.

 

F-8 


 

Unaudited consolidated statements of changes in equity for the six months ended June 30, 2019 and 2018

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Millions of Euros)

 

Capital

(Note 25)

Share Premium

Equity instruments issued other than capital

Other Equity

 

Retained earnings

(Note 26)

Revaluation reserves

 (Note 26)

Other reserves

(Note 26)

(-) Treasury shares

Profit or loss attributable to owners of the parent

(-) Interim dividends

Accumulated other comprehensive income

 (Note 27)

Non-controlling interest

Total

JUNE 2018

Valuation adjustments (Note 28)

Other

(Note 28)

Balances as of January 1, 2018

3,267

23,992

-

54

25,474

12

(44)

(96)

3,519

(1,043)

(8,792)

(3,378)

10,358

53,323

Effect of changes in accounting policies

-

-

-

-

(2,713)

-

9

-

-

-

1,756

850

(822)

(919)

Adjusted initial balance

3,267

23,992

-

54

22,761

12

(34)

(96)

3,519

(1,043)

(7,036)

(2,528)

9,536

52,404

Total income/expense recognized

-

-

-

-

-

-

-

-

2,536

-

(672)

(726)

528

1,665

Other changes in equity

-

-

-

(7)

325

(1)

(40)

(108)

(3,519)

873

1,096

540

(949)

(1,791)

Issuances of common shares

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Issuances of preferred shares

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Issuance of other equity instruments

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Settlement or maturity of other equity instruments issued

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Conversion of debt on equity

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Common Stock reduction

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Dividend distribution

-

-

-

-

(992)

-

(4)

-

-

(170)

-

-

(375)

(1,541)

Purchase of treasury shares

-

-

-

-

-

-

-

(887)

-

-

-

-

-

(887)

Sale or cancellation of treasury shares

-

-

-

-

2

-

-

779

-

-

-

-

-

781

Reclassification of other equity instruments to financial liabilities

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Reclassification of financial liabilities to other equity instruments

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Transfers between total equity entries

-

-

-

-

1,411

(1)

(30)

-

(3,519)

1,043

1,096

540

(540)

-

Increase/Reduction of equity due to business combinations

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Share based payments

-

-

-

(18)

-

-

-

-

-

-

-

-

-

(18)

Other increases or (-) decreases in equity

-

-

-

11

(96)

-

(6)

-

-

-

-

-

(35)

(126)

Balances as of June 30, 2018

3,267

23,992

-

47

23,086

11

(74)

(205)

2,536

(170)

(6,612)

(2,715)

9,115

52,278

The accompanying Notes 1 to 49 are an integral part of the Unaudited Condensed Interim Consolidated Financial Statements.

 

F-9 


 

Unaudited consolidated statements of cash flows for the six months ended June 30, 2019 and 2018

CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS (Millions of Euros)

 

 

June 2019

June 2018

A) CASH FLOWS FROM OPERATING ACTIVITIES  (1 + 2 + 3 + 4 + 5)

 

(13,908)

(5,537)

1. Profit for the period

 

2,916

3,063

2. Adjustments to obtain the cash flow from operating activities:

 

4,225

3,235

Depreciation and amortization

 

790

606

Other adjustments

 

3,435

2,629

3. Net increase/decrease in operating assets

 

(38,106)

(18,862)

Financial assets held for trading

 

(14,707)

1,291

Non-trading financial assets mandatorily at fair value through profit or loss

 

247

42

Other financial assets designated at fair value through profit or loss

 

(337)

(350)

Financial assets at fair value through other comprehensive income

 

(7,114)

(6,409)

Loans and receivables

 

(17,860)

(12,207)

Other operating assets

 

1,665

(1,229)

4. Net increase/decrease in operating liabilities

 

17,297

8,037

Financial liabilities held for trading

 

10,206

2,529

Other financial liabilities designated at fair value through profit or loss

 

1,838

754

Financial liabilities at amortized cost

 

4,000

4,968

Other operating liabilities

 

1,253

(214)

5. Collection/Payments for income tax

 

(241)

(1,010)

B) CASH FLOWS FROM INVESTING ACTIVITIES  (1 + 2)

 

(598)

(86)

1. Investment

 

(1,030)

(783)

Tangible assets

 

(672)

(244)

Intangible assets

 

(358)

(407)

Investments in joint ventures and associates

 

-

(112)

Subsidiaries and other business units

 

-

(20)

Non-current assets held for sale and associated liabilities

 

-

-

Other settlements related to investing activities

 

-

-

2. Divestments

 

432

697

Tangible assets

 

-

305

Intangible assets

 

-

-

Investments in joint ventures and associates

 

358

79

Subsidiaries and other business units

 

-

85

Non-current assets held for sale and associated liabilities

 

-

33

Other collections related to investing activities

 

74

195

C) CASH FLOWS FROM FINANCING ACTIVITIES   (1 + 2)

 

(2,257)

(1,701)

1. Payments

 

(4,812)

(3,315)

Dividends

 

(1,272)

(1,240)

Subordinated liabilities

 

(2,613)

(813)

Treasury stock amortization

 

-

-

Treasury stock acquisition

 

(591)

(887)

Other items relating to financing activities

 

(336)

(375)

2. Collections

 

2,555

1,614

Subordinated liabilities

 

1,749

833

Treasury shares increase

 

-

-

Treasury shares disposal

 

806

781

Other items relating to financing activities

 

-

-

D) EFFECT OF EXCHANGE RATE CHANGES

 

2,920

(1,991)

E) NET INCREASE/DECREASE IN CASH OR CASH EQUIVALENTS (A + B + C+ D)

 

(13,843)

(9,312)

F) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD

 

54,138

45,549

G) CASH AND CASH EQUIVALENTS AT END OF THE PERIOD (E+F)

 

40,295

36,238

 

Components of cash and equivalent at end of the period (Millions of Euros)

 

 

 

 

 

 

June 2019

June 2018

Cash

 

5,544

5,545

Balance of cash equivalent in central banks

 

34,750

30,693

Other financial assets

 

-

-

Less: Bank overdraft refundable on demand

 

-

-

TOTAL CASH AND CASH EQUIVALENTS AT END OF THE PERIOD

 

40,295

36,238

The accompanying Notes 1 to 49 are an integral part of the Unaudited Condensed Interim Consolidated Financial Statements.

F-10 


 

Notes to the unaudited condensed interim consolidated financial statements

1.   Introduction, basis for the presentation of the condensed interim consolidated financial statements and other information  

1.1.  Introduction

Banco Bilbao Vizcaya Argentaria, S.A. (hereinafter “the Bank” or “BBVA") is a private-law entity subject to the laws and regulations governing banking entities operating in Spain. It carries out its activity through branches and agencies across the country and abroad.

The Bylaws and other public information are available for inspection at the Bank’s registered address (Plaza San Nicolás, 4 Bilbao) as noted on its web site (www.bbva.com).

In addition to the activities it carries out directly, the Bank heads a group of subsidiaries, joint ventures and associates which perform a wide range of activities and which together with the Bank constitute the Banco Bilbao Vizcaya Argentaria Group (hereinafter, the “Group” or the “BBVA Group”). In addition to its own separate financial statements, the Bank is required to prepare consolidated financial statements comprising all consolidated subsidiaries of the Group.

The consolidated financial statements of the BBVA Group for the year ended December 31, 2018 were authorized for issue on March 15, 2019.

1.2.  Basis for the presentation of the condensed interim consolidated financial statements

The BBVA Group’s condensed interim consolidated financial statements are presented in accordance with the International Accounting Standard 34 “Interim Financial Reporting” (“IAS 34”) and have been presented to the Board of Directors at its meeting held on July 30, 2019. In accordance with IAS 34, the interim financial information is prepared solely for the purpose of updating the last annual consolidated financial statements, focusing on new activities, events and circumstances that occurred during the period without duplicating the information previously published in those financial statements.

Therefore, the accompanying condensed interim consolidated financial statements do not include all information required by a complete set of consolidated financial statements prepared in accordance with International Financial Reporting Standards as issued by the IFRS-IASB, consequently for an appropriate understanding of the information included in them, they should be read together with the consolidated financial statements of the Group as of and for the year ended December 31, 2018.

The aforementioned annual consolidated financial statements were presented in accordance with IFRS-IASB and with EU-IFRS applicable as of December 31 2018 respectively, considering the Bank of Spain Circular 4/2017, and any other legislation governing financial reporting applicable to the Group in Spain.

The accompanying condensed interim consolidated financial statements were prepared applying principles of consolidation, accounting policies and valuation criteria, which, as described in Note 2, are the same as those applied in the consolidated financial statements of the Group as of and for the year ended December 31, 2018, taking into consideration the new Standards and Interpretations that became effective on January 1, 2019 (see Note 2.1), so that they present fairly the Group’s consolidated equity and financial position as of June 30, 2019, together with the consolidated results of its operations and the consolidated cash flows generated by the Group during the six months ended June 30, 2019.  

F-11 


 

The condensed interim consolidated financial statements and explanatory notes were prepared on the basis of the accounting records kept by the Bank and each of the other entities in the Group. They include the adjustments and reclassifications required to harmonize the accounting policies and valuation criteria used by the entities in the Group.

All effective accounting standards and valuation criteria with a significant effect in the condensed interim consolidated financial statements were applied in their preparation.

The amounts reflected in the accompanying condensed interim consolidated financial statements are presented in millions of euros, unless it is more appropriate to use smaller units. Therefore, some items that appear without a balance in these condensed interim consolidated financial statements are due to how the units are expressed. Also, in presenting amounts in millions of euros, the accounting balances have been rounded up or down. It is therefore possible that the totals appearing in some tables are not the exact arithmetical sum of their component figures.

The percentage changes in amounts have been calculated using figures expressed in thousands of euros.

When determining the information to disclose about various items of the financial statements, the Group, in accordance with IAS 34, has taken into account their materiality in relation to the consolidated financial statements.

1.3.  Comparative information

Hyperinflationary economies

The information as of June 30, 2018 has been restated for comparative purposes taking into account the change in accounting policies for hyperinflationary economies made by the Group in 2018 in accordance with IAS 29 "Financial information in hyperinflationary economies". Additionally, the application of accounting for hyperinflation in Argentina was performed for the first time in September 2018 with accounting effects from January 1, 2018, recording the impact of the nine months in the third quarter. In order to make the 2019 financial information comparable to 2018, the condensed interim consolidated financial statements as of and for the six months ended June 30, 2018 have been reexpressed to reflect these impacts.

Leases

As of January 1, 2019, IFRS 16 “Leases” replaced IAS 17 “Leases” and includes changes in the lessee accounting model (see Note 2.1). This amendment was applied using the modified retrospective method and the previous periods have not been restated for comparison purposes as allowed by the standard itself.

Income taxes

As mentioned in Note 2.1, derived from the IFRS 2015-2017 Annual Improvements Project, the amendment to IAS 12 - Income Tax meant that the tax impacts of the distribution of dividends must be recorded in the "Tax expense or income related to profit or loss from continuing operations" line of the consolidated income statements for the period. Previously they were recorded under total equity. This amendment was applied prospectively from January 1, 2019. The amount derived from having applied this amendment to IAS 12 to prior years would have resulted in a benefit of €38 million in the consolidated income statement for the first half of 2018, which would have meant an increase of 1.5% of the profit attributable to owners of the parent result of that period). This reclassification has no impact on the consolidated total equity.

Operating segments

In 2019, there have been changes to the BBVA Group business segments in comparison to the segment structure in 2018 (See Note 5). The information related to business segments as of December 31, 2018 and as of June 30, 2018 has been restated in order to make them comparable, as required by IFRS 8 “Information by business segments”.

1.4.  Seasonal nature of income and expense

The nature of the most significant activities carried out by the BBVA Group’s entities is mainly related to typical activities carried out by financial institutions, and are not significantly affected by seasonal factors within the same year.

F-12 


 

1.5.  Responsibility for the information and for the estimates made

The information contained in the BBVA Group’s condensed interim consolidated financial statements is the responsibility of the Group’s Directors.

Estimates were required to be made at times when preparing these condensed interim consolidated financial statements in order to calculate the recorded or disclosed amount of some assets, liabilities, income, expenses and commitments. These estimates relate mainly to the following:

·          Impairment losses on certain financial assets (Notes 6, 12, 13, 14 and 15).

·          The assumptions used to quantify certain provisions (Note 23) and for the actuarial calculation of post-employment benefit liabilities and commitments (Note 24).

·          The useful life and impairment losses of tangible and intangible assets (Note 16, 17, 19 and 20).

·          The valuation of goodwill and price allocation of business combinations (Note 17).

·          The fair value of certain unlisted financial assets and liabilities (Note 7).

·          The recoverability of deferred tax assets (Note 18).

Although these estimates were made on the basis of the best information available as of the end of the reporting period, future events may make it necessary to modify them (either up or down) over the coming years. This would be done prospectively in accordance with applicable standards, recognizing the effects of changes in the estimates in the corresponding consolidated income statement.

During the six months ended June 30, 2019 there were no significant changes to the assumptions made as of December 31, 2018, except as indicated in these consolidated financial statements.

2. Principles of consolidation, accounting policies and measurement bases applied and recent IFRS pronouncements

The accounting policies and methods applied for the preparation of the accompanying condensed interim consolidated financial statements do not differ significantly to those applied in the consolidated financial statements of the Group for the year ended December 31, 2018 (Note 2) , except for the entry into force of new standards in 2019.

2.1  Standards and interpretations that became effective in the first six months of 2019

The following amendments to the IFRS standards or their interpretations (hereinafter “IFRIC”) became effective on or after January 1, 2019. They have had an impact on the BBVA Group’s condensed interim consolidated financial statements corresponding to the period ended June 30, 2019.

IFRS 16 – “Leases”

Effective January 1, 2019, IFRS 16 replaced IAS 17 “Leases”. The new standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases. The standard provides two exceptions that can be applied in the case of short-term contracts and those in which the underlying assets have low value. BBVA has elected to apply both exceptions. A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset, which is recorded under the headings “Tangible assets – Property plants and equipment” and “Tangible assets – Investment properties” of the consolidated balance sheet (see Note 16) and a lease liability representing its obligation to make lease payments which are recorded under the heading “Financial liabilities at amortized cost – Other financial liabilities” in the consolidated balance sheet (see Note 21.6). In the consolidated income statement, the amortization of the right to use is recorded in the heading “Depreciation and amortization – tangible asset” (see Note 40) and the financial cost associated with the lease liability is recorded in the heading “Interest expense – financial liabilities at amortized cost” (see Note 32.2).

F-13 


 

With regard to lessor accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor will continue to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.

At the transition date, the Group decided to apply the modified retrospective approach which requires recognition of a lease liability equal to the present value of the future payments committed to as of January 1, 2019. Regarding the measurement of the right-of-use asset, the Group elected to record an amount equal to the lease liability, adjusted for the amount of any advance or accrued lease payment related to that lease recognized in the balance sheet before the date of initial application.

As of January 1, 2019, the Group recognized assets for the right-of-use and lease liabilities for an amount of €3,419 and €3,472 million, respectively. The impact in terms of capital (CET1) of the Group amounted to -11 basis points.

IFRIC 23 – “Uncertainty over Income Tax Treatments”

IFRIC 23 provides guidance on how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments.

If the entity considers that it is probable that the taxation authority will accept an uncertain tax treatment, the Interpretation requires the entity to determine taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatment used or planned to be used in its income tax filings.

If the entity considers that it is not probable that taxation authority will accept an uncertain tax treatment, the Interpretation requires the entity to use the most likely amount or the expected value (sum of the probability weighted amounts in a range of possible outcomes) in determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates. The method used should be the method that the entity expects to provide the better prediction of the resolution of the uncertainty.

The implementation of this standard as of January 1, 2019 has not had a significant impact on the Group’s condensed interim consolidated financial statements.

Amended IAS 28 – “Long-term Interests in Associates and Joint Ventures”

The amendments to IAS 28 clarify that an entity is required to apply IFRS 9 to long term interests in an associate or joint venture that, in substance, form part of the net investment in the associate or joint venture but to which the equity method is not applied.

The implementation of this standard as of January 1, 2019 has not had a significant impact on the Group’s condensed interim consolidated financial statements.

Annual improvements cycle to IFRSs 2015-2017  

The annual improvements cycle to IFRSs 2015-2017 includes minor changes and clarifications to IFRS 3- “Business Combinations”, IFRS 11 – “Joint Arrangements”, IAS 12 – “Income Taxes” and IAS 23 – “Borrowing Costs”. The implementation of these standards as of January 1, 2019 has not had a significant impact on the Group’s condensed interim consolidated financial statements.

Additionally, this project has introduced an amendment to IAS 12, whose entry into force on January 1, 2019 meant that the tax impact of the distribution of generated benefits must be recorded in the "Expenses or income for taxes on the profits of the continuing activities" line of the consolidated income statement for the year. The amount derived from this amendment to IAS 12 resulted in a credit of €32 million in the consolidated income statement for the first half of the 2019 fiscal year (see Note 1.3).

Amended IAS 19 – “Plan Amendment, Curtailment or Settlement”

The minor amendments in IAS 19 concern the cases if a plan is amended, curtailed or settled during the period. In these cases, an entity should ensure that the current service cost and the net interest for the period after the remeasurement are determined using the assumptions applied for the remeasurement. In addition, amendments have been included to clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling.

F-14 


 

The implementation of this standard as of January 1, 2019 has not had a significant impact on the Group´s condensed interim consolidated financial statements.

2.2  Standards and interpretations issued but not yet effective as of June 30, 2019

The following new International Financial Reporting Standards together with their interpretations had been published at the date of preparation of the accompanying condensed interim consolidated financial statements, but are not mandatory as of June 30, 2019. Although in some cases the International Accounting Standards Board (“IASB”) allows early adoption before their effective date, the BBVA Group has not proceeded with this option for any such new standards.

IAS 1 and IAS 8 – “Definition of Material”

This Standard will be applied to the accounting years starting on or after January 1, 2020.

IFRS 3 – “Definition of a business”

This Standard will be applied to the accounting years starting on or after January 1, 2020.

IFRS 17 – “Insurance Contracts”

This Standard will be applied to the accounting years starting on or after January 1, 2022.

3.   BBVA Group

The BBVA Group is an international diversified financial group with a significant presence in retail banking, wholesale banking and asset management. The Group also operates in the insurance sector.

The following information is detailed in the consolidated financial statements of the Group for the year ended December 31, 2018:

·          Appendix I shows relevant information related to the consolidated subsidiaries and structured entities.

·          Appendix II shows relevant information related to investments in subsidiaries, joint ventures and associates accounted for using the equity method.

·          Appendix III shows the main changes and notification of investments and divestments in the BBVA Group.

·          Appendix IV shows fully consolidated subsidiaries with more than 10% owned by non-Group shareholders.

The BBVA Group´s activities are mainly located in Spain, Mexico, South America, the United States and Turkey, with an active presence in other areas of Europe and Asia (see Note 5).

Main transactions in the Group in the first six months of 2019

There were no significant transactions during the first six months of 2019.

F-15 


 

Main transactions in the Group in 2018

The following transactions are detailed in Note 3 of the consolidated financial statements of the Group for the year ended December 31, 2018

·          Sale of BBVA’s stake in BBVA Chile (July).

·          Agreement for the creation of a joint-venture and transfer of the Real Estate business in Spain (October).

4.   Shareholder remuneration system  

The Board of Directors, at the Annual General Meeting of March 15, 2019, approved the payment in cash of €0.16 (€0.1296 net of withholding tax) per BBVA share as the final dividend for 2018. The dividend was paid on April 10, 2019 (see Note 48.1).

5.   Operating segment reporting

Operating segment reporting represents a basic tool in the oversight and management of the BBVA Group’s various activities. The BBVA Group compiles reporting information on disaggregated business activities. These business activities are then aggregated in accordance with the organizational structure determined by the BBVA Group and, ultimately, into the reportable operating segments themselves.

As of June 30, 2019, the reporting structure of the BBVA Group’s business areas differs from the one presented at the end of the year 2018, as a result of the integration of the Non-Core Real Estate business area into Banking Activity in Spain, which has been renamed “Spain”. Additionally, balance sheet intra-group adjustments between Corporate Center and the operating segments have been reallocated to the corresponding operating segments. In addition, certain expenses related to global projects and activities have been reallocated between the Corporate Center and the corresponding operating segments. In order to make the information as of and for the six months ended June 30, 2019 comparable as required by IFRS 8 “Information by business segments”, figures as of December 31, 2018 and for the six months ended June 30, 2018 have been restated in conformity with the new segment reporting structure. The BBVA Group's operating segments are summarized below:

·          Spain

Includes mainly the banking and insurance business that the Group carries out in Spain.

·          The United States

Includes the financial business activity of BBVA USA in the country and the activity of the branch of BBVA Spain in New York.

·          Mexico

Includes banking and insurance businesses in this country as well as the activity of its branch in Houston.

·          Turkey

Reports the activity of Garanti BBVA group that is mainly carried out in this country and, to a lesser extent, in Romania and the Netherlands.

·          South America

Includes basically the Group´s banking and insurance businesses in the region.

·          Rest of Eurasia

Includes the banking business activity carried out by the Group in Europe, excluding Spain, and in Asia.

F-16 


 

Lastly, Corporate Center performs centralized Group functions, including: the costs of the head offices with a corporate function; management of structural exchange rate positions; some equity instruments issuances to ensure an adequate management of the Group's global solvency. It also includes portfolios whose management is not linked to customer relationships, such as industrial holdings, certain tax assets and liabilities; funds due to commitments to employees; goodwill and other intangible assets.

The breakdown of the BBVA Group’s total assets by operating segments as of June 30, 2019 and December 31, 2018, is as follows:

Total assets by Operating Segments (Millions of Euros)

 

June 2019

December 2018

Spain

368,982

354,901

United States

86,229

82,057

Mexico

105,366

97,432

Turkey

64,641

66,250

South America

56,433

54,373

Rest of Eurasia

20,209

18,834

Subtotal Assets by Operating Segments

701,860

673,848

Corporate Center and adjustments

(4,234)

2,841

Total Assets BBVA Group

697,626

676,689

The attributable profit and main earnings figures in the consolidated income statements as of June 30, 2019 and 2018 by operating segments are as follows:

Main margins and profit by Operating Segments (Millions of Euros)

 

 

 

Operating Segments

 

 

 

BBVA Group

Spain

United

States

Mexico

Turkey

South America

Rest

of

Eurasia

Corporate Center

June 2019

 

 

 

 

 

 

 

 

 

Net interest income

 

8,987

1,808

1,217

3,042

1,353

1,613

84

(132)

Gross income

 

11,989

2,818

1,615

3,901

1,677

1,994

220

(236)

Net operating income

 

6,115

1,190

655

2,611

1,084

1,215

78

(718)

Profit or loss before tax from continuing operations

 

4,052

1,027

363

1,783

726

847

69

(762)

Profit

 

2,442

734

297

1,287

282

404

55

(616)

June 2018

 

 

 

 

 

 

 

 

 

Net interest income

 

8,590

1,852

1,082

2,648

1,510

1,553

83

(137)

Gross income

 

11,863

3,023

1,437

3,465

1,924

1,987

217

(188)

Net operating income

 

5,967

1,336

544

2,309

1,245

1,078

77

(621)

Profit or loss before tax from continuing operations

 

4,286

1,056

493

1,654

964

724

93

(698)

Profit

 

2,536

746

385

1,200

372

332

60

(558)

 

 

 

F-17 


 

  

6.   Risk management

The principles and risk management policies, as well as tools and procedures established and implemented in the Group as of June 30, 2019 do not differ significantly from those included in the consolidated financial statements of the Group for the year ended December 31, 2018 (see Note 7 of such financial statements).

6.1  Risk factors

BBVA has processes in place for identifying risks and analyzing scenarios that enable the Group to manage risks in a dynamic and proactive way.

The risk identification processes are forward looking to ensure the identification of emerging risks and take into account the concerns of both the business areas, which are close to the reality of the different geographical areas, and the corporate areas and senior management.  

Risks are captured and measured consistently using the methodologies deemed appropriate in each case. Their measurement includes the design and application of scenario analyses and stress testing and considers the controls to which the risks are subjected.

As part of this process, a forward projection of the risk appetite framework variables in stress scenarios is conducted in order to identify possible deviations from the established thresholds. If any such deviations are detected, appropriate measures are taken to keep the variables within the target risk profile.

To this extent, there are a number of risks that could affect the Group’s business trends. These risks are described in the following main sections:

·          Macroeconomic and geopolitical risks

Global growth is slowing in the face of protectionist pressures affecting the global industrial sector and international trade, although first quarter data indicates a certain degree of stabilization, supported by the strength of the service sector, strong employment and low inflation. This trend is occurring across all regions, with cyclical slowdown in the United States, the trend toward growth moderation in China and the continuation of lower growth in Europe. Thus, global growth is forecasted at around 3.3% in 2019 and 2020. However, the deterioration of trade negotiations between the United States and China since late April poses a major risk to the global economy.

In terms of monetary policy, the main central banks signaled their intention to adopt further measures that would provide a stimulus to counteract the high level of uncertainty in the economy, as well as the continued decrease in the long-term inflation outlook. The Federal Reserve, after raising its benchmark interest rate to 2.50% in December, laid the foundations to initiate interest rate reductions in the face of more moderate growth forecasts, weighed down by the trade threat and political uncertainty. For its part, the ECB strengthened its accommodative monetary policy stance by approving a new liquidity provision program, postponing its commitment to maintain interest rates at current levels until mid-2020, and indicating that it has a range of instruments at its disposal to combat growth and inflation risks, including the reduction of deposit rates or the renewal of the bond purchase program. Accordingly, interest rates will remain low in major economies, enabling emerging countries to gain room to maneuver.

·          Regulatory and reputational risks

·        Financial institutions are exposed to a complex and ever-changing regulatory environment defined by governments and regulators. This can affect their ability to grow and the capacity of certain businesses to develop, and result in stricter liquidity and capital requirements with lower profitability ratios. The Group constantly monitors changes in the regulatory framework that allow for anticipation and adaptation to them in a timely manner, adopt industry practices and more efficient and rigorous criteria in its implementation.

F-18 


 

·        The financial sector is under ever closer scrutiny by regulators, governments and society itself. In the course of activities, situations which might cause relevant reputational damage to the entity could raise and might affect the regular course of business. The attitudes and behaviors of the Group and its members are governed by the principles of integrity, honesty, long-term vision and industry practices through, inter alia, the internal control model, the Code of Conduct, the Corporate Principles in tax matters and Responsible Business Strategy of the Group.

·          Business, operational and legal risks

·        New technologies and forms of customer relationships: Developments in the digital world and in information technologies pose significant challenges for financial institutions, entailing threats (new competitors, disintermediation, etc.) but also opportunities (new framework of relations with customers, greater ability to adapt to their needs, new products and distribution channels, etc.). Digital transformation is a priority for the Group as it aims to lead digital banking of the future as one of its objectives.

·        Technological risks and security breaches: The Group is exposed to new threats such as cyber-attacks, theft of internal and customer databases, fraud in payment systems, etc. that require major investments in security from both the technological and human point of view. The Group gives great importance to the active operational and technological risk management and control. One example was the early adoption of advanced models for management of these risks (AMA - Advanced Measurement Approach). 

·        The financial sector is exposed to increasing litigation, so the financial institutions face a large number of proceedings of every kind, civil, criminal, administrative, litigation, as well as investigations from the supervisor, along several jurisdictions, which consequences are difficult to determine (including those procedures in which an undetermined number of applicants is involved, in which damages claimed are not easy to estimate, in which an exorbitant amount is claimed, in which new jurisdictional issues are introduced under creative non contrasted legal arguments and those which are at a very initial stage).

·        In Spain, in many of the existing proceedings the plaintiffs claim, both before Spanish courts and in preliminary rulings before the Court of Justice of the European Union, that a number of clauses usually included in a mortgage loan agreements with financial institutions are declared abusive (including mortgage costs clauses, early termination clauses, the use of certain reference interest rates and opening fees).

With regards to mortgage loan agreements with consumers linked to the IRPH index (average rate of mortgage loans for more than three years for the acquisition of free housing, granted by credit institutions in Spain), which is considered an "official interest rate" by the mortgage transparency regulation, calculated by the Bank of Spain and published in the Spanish Official Gazette, the Spanish Supreme Court issued on December 14, 2017 ruling nº 669/2017 in which confirmed that it was not possible to determine the lack of transparency of the interest rate of the loan from the mere fact of its reference to one or another official index, or consider it abusive according to Directive 93/13. As of the date of this report, there is still pending a preliminary ruling resolution of the European Court of Justice which challenges the decision taken by the Spanish Supreme Court.

In addition, the application of certain interest rates and other mandatory rules in certain revolving credit card agreements is also being challenged in Spanish courts. This kind of resolution against the Group or other financial institutions may directly or indirectly affect the Group.

·        The Group is also involved in antitrust proceedings in certain countries which could, among other things, give rise to sanctions or lead to lawsuits from third parties.

·        The Spanish judicial authorities are investigating the activities of the company Centro Exclusivo de Negocios y Transacciones, S.L. (Cenyt). Such investigation includes the provision of services to the Bank. In this regard, on 29 July 2019, the Bank was notified of the order from the Central Investigating Court number 6 of the National High Court, declaring the Bank as an official suspect (investigado) under preliminary proceedings 96/2017 - piece number 9, for possible breaches of law related to bribery, revelation of secrets and corruption. The Bank has been collaborating proactively with the judicial authorities, sharing with the courts information of the 'forensic' investigation, currently ongoing, which was commissioned to PriceWaterhouseCoopers through its external lawyers Garrigues, together with Uría. The Bank is not authorized to publicly divulge this information given the requirement of not interfering with the judicial investigation. The criminal proceeding is at an incipient stage in the pre-trial phase and continues under secrecy order, so it is not possible to predict at this time the scope or duration of such proceeding or its possible outcome or implications for the Group, notwithstanding the potential reputation risk of these proceedings.

F-19 


 

·        The Group constantly manages and monitors investigations, proceedings and legal or regulatory actions for the defense of its interests, making provisions (based on the number of litigations and the status of the proceedings or actions) to cover them when necessary. However, it is difficult to predict the outcome of investigations, legal or regulatory proceedings or actions to which the Bank is already a party, those that may arise in the future or those in which other financial institutions are a party. Therefore, in the event of a change in the case law or unexpected results of some of these, the provisions recorded may be insufficient and may have a significant adverse effect on the Group's business, financial position and results.

6.2   Credit risk

6.2.1  Credit risk exposure

In accordance with IFRS 7 “Financial Instruments: Disclosures”, the BBVA Group’s credit risk, not including its impairment losses, by headings in the balance sheets as of June 30, 2019 and December 31, 2018, is provided below. It does not consider the availability of collateral or other credit enhancements to guarantee compliance with payment obligations. The details are broken down by financial instruments and counterparties:

Maximum credit risk exposure (Millions of Euros)

 

Notes

June 2019

Stage 1

Stage 2

Stage 3

Financial assets held for trading

 

74,954

 

 

 

Debt securities

9

32,274

 

 

 

Equity instruments

9

5,555

 

 

 

Loans and advances

9

37,125

 

 

 

Non-trading financial assets mandatorily at fair value through profit or loss

 

4,918

 

 

 

Loans and advances

10

1,052

 

 

 

Debt securities

10

155

 

 

 

Equity instruments

10

3,711

 

 

 

Financial assets designated at fair value through profit or loss

11

1,403

 

 

 

Derivatives (trading and hedging)

 

40,738

 

 

 

Financial assets at fair value through other comprehensive income

 

63,396

63,396

-

-

Debt securities

12

60,750

60,750

-

-

Equity instruments

12

2,613

2,613

-

-

Loans and advances to credit institutions

12

33

33

-

-

Financial assets at amortized cost

 

443,162

394,884

32,230

16,048

Loans and advances to central banks

 

5,582

5,582

-

-

Loans and advances to credit institutions

 

10,862

10,739

113

10

Loans and advances to customers

 

389,306

341,582

31,724

15,999

Debt securities

 

37,412

36,981

392

39

Total financial assets risk

 

628,572

458,280

32,230

16,048

Total loan commitments and financial guarantees

30

174,621

164,314

9,389

918

Total maximum credit exposure

 

803,193

 

 

 

 

Maximum Credit Risk Exposure (Millions of Euros)

 

Notes

December

2018

Stage 1

Stage 2

Stage 3

Financial assets held for trading

 

59,581

 

 

 

Debt securities

9

25,577

 

 

 

Equity instruments

9

5,254

 

 

 

Loans and advances

9

28,750

 

 

 

Non-trading financial assets mandatorily at fair value through profit or loss

 

5,135

 

 

 

Loans and advances

10

1,803

 

 

 

Debt securities

10

237

 

 

 

Equity instruments

10

3,095

 

 

 

Financial assets designated at fair value through profit or loss

11

1,313

 

 

 

Derivatives (trading and hedging)

 

38,249

 

 

 

Financial assets at fair value through other comprehensive income

 

56,365

56,362

3

-

Debt securities

12

53,737

53,734

3

-

Equity instruments

12

2,595

2,595

-

-

Loans and advances to credit institutions

12

33

33

-

-

Financial assets at amortized cost

 

431,927

384,632

30,902

16,394

Loans and advances to central banks

 

3,947

3,947

-

-

Loans and advances to credit institutions

 

9,175

9,131

34

10

Loans and advances to customers

 

386,225

339,204

30,673

16,348

Debt securities

 

32,580

32,350

195

35

Total financial assets risk

 

592,571

440,993

30,905

16,394

Total loan commitments and financial guarantees

30

170,511

161,404

8,120

987

Total maximum credit exposure

 

763,082

 

 

 

F-20 


 

The breakdown by country and Stage of the maximum credit risk exposure, the provisions recognized and the carrying amount of the loans and advances to customers as of June 30, 2019 and 2018 is shown below:

June 2019

 

Gross exposure

Accumulated impairment

Carrying amount

 

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Spain (*)

174,609

13,510

9,061

197,180

(748)

(740)

(3,932)

(5,420)

173,860

12,771

5,129

191,760

The United States

48,971

6,222

730

55,923

(193)

(326)

(213)

(732)

48,778

5,896

516

55,190

Mexico

51,450

3,600

1,289

56,339

(690)

(379)

(833)

(1,901)

50,760

3,221

456

54,438

Turkey (**)

32,859

5,687

3,093

41,639

(179)

(559)

(1,614)

(2,353)

32,680

5,128

1,478

39,286

South America (***)

32,906

2,698

1,807

37,411

(371)

(259)

(1,096)

(1,726)

32,535

2,439

712

35,685

Others

788

7

19

814

(1)

(1)

(17)

(18)

787

6

2

796

Total (****)

341,582

31,724

15,999

389,306

(2,182)

(2,263)

(7,706)

(12,151)

339,400

29,462

8,293

377,155

(*)      Spain includes all countries where BBVA, S.A. operates.

(**)    Turkey includes all countries in which Garanti BBVA operates.

(***)   In South America, BBVA Group operates in Argentina, Chile, Colombia, Paraguay, Peru, Uruguay and Venezuela.

(****)  The amount of the accumulated impairment includes the provisions recorded for credit risk over the remaining expected lifetime of purchased financial instruments. Those provisions were determined at the moment of the Purchase Price Allocation and were originated mainly in the acquisition of Catalunya Banc, S.A.

 

 

F-21 


 

December 2018

 

Gross exposure

Accumulated impairment

Carrying amount

 

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Spain (*)

172,599

12,827

10,021

195,447

(713)

(877)

(4,284)

(5,874)

171,886

11,951

5,737

189,574

The United States

50,665

5,923

733

57,321

(206)

(299)

(153)

(658)

50,459

5,624

580

56,663

Mexico

48,354

3,366

1,138

52,858

(640)

(373)

(737)

(1,750)

47,714

2,992

401

51,107

Turkey (**)

34,883

6,113

2,722

43,718

(171)

(591)

(1,479)

(2,241)

34,712

5,523

1,244

41,479

South America (***)

31,947

2,436

1,715

36,098

(338)

(234)

(1,084)

(1,656)

31,609

2,202

631

34,442

Others

756

8

19

783

-

(1)

(18)

(19)

755

7

1

763

Total (****)

339,204

30,673

16,348

386,225

(2,070)

(2,374)

(7,755)

(12,199)

337,134

28,299

8,593

374,027

(*)      Spain includes all countries where BBVA, S.A. operates.

(**)    Turkey includes all countries in which Garanti BBVA operates.

(***)   In South America, BBVA Group operates in Argentina, Chile, Colombia, Paraguay, Peru, Uruguay and Venezuela.

(****) The amount of the accumulated impairment includes the provisions recorded for credit risk over the remaining expected lifetime of purchased financial instruments. Those provisions were determined at the moment of the Purchase Price Allocation and were originated mainly in the acquisition of Catalunya Banc, S.A.

The disclosure of loans and advances at amortized cost covered by collateral, at June 30, 2019 and December 31, 2018, is the following:

Guarantees received (Millions of Euros)

 

June 2019

December 2018

Value of collateral

156,190

158,268

Of which: guarantees normal risks under special monitoring

13,874

14,087

Of which: guarantees non-performing risks

4,668

5,068

Value of other guarantees

25,330

16,897

Of which: guarantees normal risks under special monitoring

2,186

1,519

Of which: guarantees non-performing risks

509

502

Total value of guarantees received

181,521

175,165

The breakdown by counterparty and product of loans and advances, net of impairment losses, as well as the gross carrying amount by type of product, classified in the different headings of the assets, as of June 30, 2019 and December 31, 2018 is shown below:

 

F-22 


 

June 2019 (Millions of Euros)

 

Central banks

General governments

Credit institutions

Other financial corporations

Non-financial corporations

Households

Total

Gross carrying amount

On demand and short notice

-

7

-

192

2,689

616

3,503

3,686

Credit card debt

-

11

1

3

1,935

13,459

15,409

16,619

Trade receivables

 

1,007

-

364

14,937

96

16,404

16,688

Finance leases

-

227

-

6

8,201

405

8,838

9,198

Reverse repurchase loans

-

116

260

4

3

-

383

386

Other term loans

5,534

27,407

3,609

6,752

135,393

159,780

338,475

348,547

Advances that are not loans

41

880

7,009

2,022

1,147

549

11,648

11,711

LOANS AND ADVANCES

5,575

29,655

10,879

9,342

164,305

174,906

394,661

406,836

By secured loans

 

 

 

 

 

 

 

 

Of which: mortgage loans collateralized by immovable property

 

1,102

15

270

25,319

111,314

138,021

141,562

Of which: other collateralized loans

-

8,758

172

1,081

28,409

6,621

45,041

45,922

By purpose of the loan

 

 

 

 

 

 

 

 

Of which: credit for consumption

 

 

 

 

 

41,636

41,636

44,403

Of which: lending for house purchase

 

 

 

 

 

110,423

110,423

111,949

By subordination

 

 

 

 

 

 

 

 

Of which: project finance loans

 

 

 

 

13,554

 

13,554

13,871

 

 

F-23 


 

December 2018 (Millions of Euros)

 

Central banks

General governments

Credit institutions

Other financial corporations

Non-financial corporations

Households

Total

Gross carrying amount

On demand and short notice

-

10

-

151

2,833

648

3,641

3,834

Credit card debt

-

8

1

2

2,328

13,108

15,446

16,495

Trade receivables

 

948

-

195

16,190

103

17,436

17,716

Finance leases

-

226

-

3

8,014

406

8,650

9,077

Reverse repurchase loans

-

293

477

-

-

-

770

772

Other term loans

3,911

26,839

2,947

7,030

133,573

157,760

332,060

342,264

Advances that are not loans

29

1,592

5,771

2,088

984

498

10,962

11,025

LOANS AND ADVANCES

3,941

29,917

9,196

9,468

163,922

172,522

388,966

401,183

By secured loans

 

 

 

 

 

 

 

 

Of which: mortgage loans collateralized by immovable property

 

1,056

15

219

26,784

111,809

139,883

144,005

Of which: other collateralized loans

-

7,179

285

1,389

31,393

6,835

47,081

47,855

By purpose of the loan

 

 

 

 

 

 

 

 

Of which: credit for consumption

 

 

 

 

 

40,124

40,124

42,736

Of which: lending for house purchase

 

 

 

 

 

111,007

111,007

112,952

By subordination

 

 

 

 

 

 

 

 

Of which: project finance loans

 

 

 

 

13,973

 

13,973

14,286

F-24 


 

6.2.2  Past due but not impaired and impaired secured loans risks

The tables below provide details by counterpart and by product of past due risks not considered to be impaired, as of June 30, 2019 and December 31, 2018, listed by their first past-due date; as well as the breakdown of the debt securities and loans and advances individually and collectively estimated, and the specific allowances for individually estimated and for collectively estimated.

June 2019 (Millions of Euros)

 

Stage 1

Stage 2

Stage 3

 

<= 30 days

> 30 days <= 90 days

> 90 days

<= 30 days

> 30 days <= 90 days

> 90 days

<= 30 days

> 30 days <= 90 days

> 90 days

Debt securities

-

-

-

-

-

-

-

-

18

Loans and advances

4,414

281

-

5,143

2,547

-

583

551

2,851

Central banks

-

-

-

-

-

-

-

-

-

General governments

109

32

-

6

1

-

13

-

20

Credit institutions

6

5

-

-

-

-

-

-

-

Other financial corporations

163

2

-

4

1

-

-

-

6

Non-financial corporations

1,153

170

-

1,711

918

-

158

187

1,410

Households

2,982

71

-

3,423

1,628

-

412

363

1,416

TOTAL

4,414

281

-

5,143

2,547

-

583

551

2,870

Loans and advances by product, by collateral and by subordination

-

-

-

-

-

-

-

-

-

On demand (call) and short notice (current account)

263

1

-

32

50

-

1

2

35

Credit card debt

239

6

-

659

114

-

5

27

130

Trade receivables

29

14

-

40

145

-

5

3

59

Finance leases

297

20

-

76

103

-

16

46

90

Reverse repurchase loans

-

-

-

-

-

-

-

-

-

Other term loans

3,577

186

-

4,336

2,133

-

555

473

2,532

Advances that are not loans

10

54

-

-

1

-

-

-

5

Of which: mortgage loans collateralized by immovable property

1,623

46

-

2,115

1,122

-

461

375

1,247

Of which: other collateralized loans

341

21

-

945

169

-

22

28

162

Of which: credit for consumption

985

27

-

1,266

461

-

27

50

376

Of which: lending for house purchase

1,384

30

-

1,819

941

-

333

257

707

Of which: project finance loans

34

-

-

8

188

-

-

-

52

F-25 


 

 

December 2018 (Millions of Euros)

 

Stage 1

Stage 2

Stage 3

 

<= 30 days

> 30 days <= 90 days

> 90 days

<= 30 days

> 30 days <= 90 days

> 90 days

<= 30 days

> 30 days <= 90 days

> 90 days

Debt securities

-

-

-

-

-

-

-

-

5

Loans and advances

4,191

454

-

4,261

3,228

-

407

900

2,769

Central banks

-

-

-

-

-

-

-

-

-

General governments

95

7

-

5

1

-

5

5

26

Credit institutions

3

-

-

-

-

-

-

-

-

Other financial corporations

117

224

-

2

-

-

-

-

5

Non-financial corporations

1,140

158

-

1,282

1,180

-

149

276

1,333

Households

2,835

64

-

2,971

2,047

-

254

618

1,404

TOTAL

4,191

454

-

4,261

3,228

-

407

900

2,774

Loans and advances by product, by collateral and by subordination

 

 

 

 

 

 

 

 

 

On demand (call) and short notice (current account)

127

-

-

25

47

-

3

4

52

Credit card debt

182

10

-

598

102

-

24

25

120

Trade receivables

46

12

-

20

106

-

2

11

50

Finance leases

307

16

-

43

102

-

10

20

110

Reverse repurchase loans

-

-

-

-

-

-

-

-

-

Other term loans

3,421

325

-

3,575

2,869

-

369

840

2,433

Advances that are not loans

108

89

-

-

1

-

-

-

4

Of which: mortgage loans collateralized by immovable property

1,681

38

-

1,598

1,745

-

251

712

1,365

Of which: other collateralized loans

255

14

-

742

99

-

22

21

103

Of which: credit for consumption

910

27

-

1,278

424

-

49

49

281

Of which: lending for house purchase

1,365

24

-

1,394

1,404

-

170

507

839

Of which: project finance loans

1

-

-

-

382

-

-

-

71

F-26 


 

The breakdown of loans and advances, within financial assets at amortized cost, impaired and accumulated impairment, as well as the gross carrying amount, by counterparties as of June 30, 2019 and December 31, 2018 is as follows:

June 2019 (Millions of Euros)

 

Gross carrying amount

Non-performing loans and advances

Accumulated impairment

Non-performing loans and advances as a % of the total

Central banks

5,582

-

(8)

-

General governments

29,167

104

(92)

0.4%

Credit institutions

10,862

10

(16)

0.1%

Other financial corporations

9,405

17

(63)

0.2%

Non-financial corporations

170,149

8,484

(6,270)

5.0%

Households

180,585

7,394

(5,725)

4.1%

LOANS AND ADVANCES

405,750

16,009

(12,174)

3.9%

 

December 2018 (Millions of Euros)

 

Gross carrying amount

Non-performing loans and advances

Accumulated impairment

Non-performing loans and advances as a % of the total

Central banks

3,947

-

(6)

-

General governments

28,632

128

(84)

0.4%

Credit institutions

9,175

10

(12)

0.1%

Other financial corporations

9,490

11

(22)

0.1%

Non-financial corporations

169,764

8,372

(6,260)

4.9%

Households

178,339

7,838

(5,833)

4.4%

LOANS AND ADVANCES

399,347

16,359

(12,217)

4.1%

The changes during the six months ended June 30, 2019 and the year ended December 31, 2018 of impaired financial assets and contingent risks are as follow:

Changes in Impaired Financial Assets and Contingent Risks (Millions of Euros)

 

June

2019

December

2018

Balance at the beginning

17,134

20,590

Additions

4,817

9,792

Decreases (*)

(2,940)

(6,909)

Net additions

1,877

2,883

Amounts written-off

(1,734)

(5,076)

Exchange differences and other

(522)

(1,264)

Balance at the end

16,755

17,134

(*)  Reflects the total amount of impaired loans derecognized from the consolidated balance sheet throughout the period as a result of mortgage foreclosures and real estate assets received in lieu of payment as well as monetary recoveries.

 

 

F-27 


 

6.2.3  Impairment losses

Below are the changes in the six months ended June 30, 2019, and the year ended December 31, 2018 in the provisions recognized on the accompanying consolidated balance sheets to cover estimated impairment losses in loans and advances and debt securities measured at amortized cost and financial assets at fair value through other comprehensive income:

Changes in the accumulated impairment losses (Millions of Euros)

 

June

2019

December 

2018

Opening balance

12,295

14,004

Acquisition of subsidiaries in the period

-

-

Increase in impairment losses charged to income

6,110

9,070

Stage 1

1,117

1,411

Stage 2

1,334

1,071

Stage 3

3,659

6,589

Decrease in impairment losses charged to income

(4,118)

(4,547)

Stage 1

(922)

(1,469)

Stage 2

(944)

(799)

Stage 3

(2,252)

(2,279)

Transfer to written-off loans, exchange differences and other

(2,022)

(6,231)

Closing balance

12,265

12,295

  

 

F-28 


 

7.   Fair value of financial instruments

The criteria and valuation methods used to calculate the fair value of financial assets as of June 30, 2019 do not differ significantly from those included in Note 8 from the Consolidated Financial Statements for the year ended December 31, 2018.

The techniques and unobservable inputs used for the valuation of the financial instruments classified in the fair value hierarchy as Level 3, do not significantly differ from those detailed in Note 8 of the Consolidated Financial Statements for the year 2018. Nonetheless, certain interest rate curves have been adapted to those observable in the market, which mainly affects the valuation of certain deposit classes recorded under “Financial liabilities at amortized cost” and certain insurance products recorded under “Financial liabilities designated at fair value through profit or loss - Other financial liabilities”, and, a result thereof, their classification as instruments of Level 2 from Level 3 previously.

The effect on the consolidated income statements and on the consolidated equity, resulting from changing the main assumptions used in the valuation of Level 3 financial instruments for other reasonably possible assumptions, does not differ significantly from that detailed in Note 8 of the Consolidated Financial Statements for the year 2018.

Below is a comparison of the carrying amount of the Group’s financial instruments in the accompanying consolidated balance sheets and their respective fair values as of June 30, 2019 and December 31, 2018:

Fair Value and Carrying Amount (Millions of Euros)

 

 

June 2019

December 2018

 

Notes

Carrying Amount

Fair Value

Carrying Amount

Fair Value

ASSETS

 

 

 

 

 

Cash, cash balances at central banks and other demand deposits

8

44,565

44,565

58,196

58,196

Financial assets held for trading

9

105,369

105,369

90,117

90,117

Non-trading financial assets mandatorily at fair value through profit or loss

10

4,918

4,918

5,135

5,135

Financial assets designated at fair value through profit or loss

11

1,403

1,403

1,313

1,313

Financial assets at fair value through other comprehensive income

12

63,364

63,364

56,337

56,337

Financial assets at amortized cost

13

430,930

431,066

419,660

419,857

Hedging derivatives

14

3,105

3,105

2,892

2,892

LIABILITIES

 

 

 

 

 

Financial liabilities held for trading

9

91,358

91,358

80,774

80,774

Financial liabilities designated at fair value through profit or loss

11

8,922

8,922

6,993

6,993

Financial liabilities at amortized cost

21

513,937

510,526

509,185

510,300

Hedging derivatives

14

3,281

3,281

2,680

2,680

 

 

F-29 


 

The following table shows the financial instruments in the accompanying consolidated balance sheets, broken down by the measurement technique used to determine their fair value as of June 30, 2019 and December 31, 2018:

Fair value of financial instruments by levels (Millions of Euros)

 

 

 

June 2019

 

 

December 2018

 

 

Notes

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

ASSETS

 

 

 

 

 

 

 

Cash, cash balances at central banks and other demand deposits

8

44,333

-

233

58,024

-

172

Financial assets held for trading

9

31,594

72,726

1,048

26,730

62,983

404

Loans and advances

 

1,341

35,704

80

47

28,642

60

Debt securities

 

21,295

10,229

750

17,884

7,494

199

Equity instruments

 

5,499

-

56

5,194

-

60

Derivatives

 

3,459

26,793

163

3,605

26,846

85

Non-trading financial assets mandatorily at fair value through profit or loss

10

3,707

40

1,171

3,127

78

1,929

Loans and advances

 

59

-

993

25

-

1,778

Debt securities

 

43

38

75

90

71

76

Equity instruments

 

3,606

2

102

3,012

8

75

Financial assets designated at fair value through profit or loss

11

1,403

-

-

1,313

-

-

Loans and advances

 

-

-

-

-

-

-

Debt securities

 

1,403

-

-

1,313

-

-

Equity instruments

 

-

-

-

-

-

-

Financial assets at fair value through other comprehensive income

12

52,768

9,626

969

45,824

9,323

1,190

Loans and advances

 

33

-

-

33

-

-

Debt securities

 

50,733

9,505

481

43,788

9,211

711

Equity instruments

 

2,003

121

489

2,003

113

479

Financial assets at amortized cost

13

25,582

218,460

187,024

21,419

204,619

193,819

Hedging derivatives

14

40

3,061

3

7

2,882

3

LIABILITIES

 

 

 

 

 

 

 

Financial liabilities held for trading

9

26,373

64,748

237

22,932

57,573

269

Deposits

 

9,682

36,995

-

7,989

29,945

-

Trading derivatives

 

3,828

27,753

236

3,919

27,628

267

Other financial liabilities

 

12,862

-

1

11,024

-

1

Financial liabilities designated at fair value through profit or loss

11

-

8,915

7

-

4,478

2,515

Customer deposits

 

-

999

-

-

976

-

Debt certificates

 

-

3,985

7

-

2,858

-

Other financial liabilities

 

-

3,930

-

-

643

2,515

Financial liabilities at amortized cost

21

61,062

282,829

166,635

58,225

269,128

182,948

Derivatives – Hedge accounting

14

233

3,039

10

223

2,454

3

F-30 


 

8.   Cash, cash balances at central banks and other demand deposits

The breakdown of the balance under the heading “Cash, cash balances at central banks and other demand deposits” in the accompanying consolidated balance sheets is as follows:

Cash, cash balances at central banks and other demand deposits (Millions of Euros)

 

 

June

2019

December

2018

Cash on hand

 

5,544

6,346

Cash balances at central banks

 

29,216

43,880

Other demand deposits

 

9,805

7,970

Total

 

44,565

58,196

The change in “Cash balances at central banks” is mainly due to the decrease in Bank of Spain.

9.   Financial assets and liabilities held for trading

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:

Financial assets and liabilities held-for-trading (Millions of Euros)

 

Notes

June 2019

December 2018

ASSETS

 

 

 

Derivatives

 

30,414

30,536

Equity instruments

6.2.1

5,555

5,254

Debt securities

6.2.1

32,274

25,577

   Issued by Central Banks

 

1,298

1,001

   Issued by public administrations

 

28,919

22,950

   Issued by financial institutions

 

778

790

   Other debt securities

 

1,279

836

Loans and advances to Central Banks

6.2.1

244

2,163

Reverse repurchase agreements

 

244

2,163

Loans and advances to credit institutions

6.2.1

24,493

14,566

Reverse repurchase agreements

 

24,352

13,305

Loans and advances to customers

6.2.1

12,388

12,021

Reverse repurchase agreements

 

12,123

11,794

Total  Assets

 

105,369

90,117

LIABILITIES

 

 

 

Derivatives

 

31,817

31,815

Short positions

 

12,864

11,025

Deposits from central banks

 

8,556

10,511

  Repurchase agreements

 

8,556

10,511

Deposits from credit institutions

 

29,733

15,687

  Repurchase agreements

 

29,360

14,839

Deposits from customers

 

8,388

11,736

  Repurchase agreements

 

8,307

11,466

Total  Liabilities

 

91,358

80,774

  

F-31 


 

10.   Non-trading financial assets mandatorily at fair value through profit or loss

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Non-trading financial assets mandatorily at fair value through profit or loss (Millions of Euros)

 

Notes

June 2019

December 2018

Equity instruments

6.2.1

3,711

3,095

Debt securities

6.2.1

155

237

Loans and advances

6.2.1

1,052

1,803

Total

 

4,918

5,135

11.   Financial assets and liabilities designated at fair value through profit or loss

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:

Financial assets and liabilities designated at fair value through profit or loss (Millions of Euros)

 

Notes

June

2019

December

2018

ASSETS

 

 

 

Debt securities

 

1,403

1,313

Total Assets

6.2.1

1,403

1,313

LIABILITIES

 

 

 

Deposits

 

999

976

Debt certificates

 

3,992

2,858

Other financial liabilities

 

3,931

3,159

Unit-linked products

 

3,931

3,159

Total Liabilities

 

8,922

6,993

  

12.   Financial assets at fair value through other comprehensive income

12.1 Balance details

The breakdown of the balance by the main financial instruments in the accompanying consolidated balance sheets is as follows:

Financial assets designated at fair value through other comprehensive income (Millions of Euros)

 

Notes

June

2019

December

2018

Debt securities

6.2.1

60,750

53,737

Impairment losses

 

(32)

(28)

Subtotal

 

60,718

53,709

Equity instruments

6.2.1

2,613

2,595

Loans and advances to credit institutions

6.2.1

33

33

Total

 

63,364

56,337

F-32 


 

12.2 Debt securities

The breakdown of the balance under the heading “Debt securities at fair value through other comprehensive income” of the accompanying condensed interim consolidated financial statements, broken down by issuers, is as follows:

Financial assets designated at fair value through other comprehensive income: Debt Securities. June 2019 (Millions of Euros)

 

 

Amortized

Cost (*)

Unrealized

Gains

Unrealized

Losses

Fair

 Value 

Domestic Debt Securities

 

26,138

1,085

(10)

27,213

Spanish Government and other Spanish government agency debt securities

 

24,304

967

(10)

25,261

Securities issued by Central Banks

 

-

-

-

-

Securities issued by credit institutions

 

894

73

-

967

Securities issued by other issuers

 

940

45

-

984

Foreign Debt Securities

 

33,529

523

(548)

33,506

Mexico

 

6,209

17

(77)

6,150

Mexican Government and other Mexican government agency debt securities

 

5,249

15

(54)

5,210

Securities issued by Central Banks

 

-

-

-

-

Securities issued by credit institutions

 

68

-

(1)

68

Securities issued by other issuers

 

892

2

(22)

872

The United States

 

11,442

87

(80)

11,449

Government securities

 

8,220

61

(32)

8,248

US Treasury and other US Government agencies

 

4,831

52

(8)

4,874

States and political subdivisions

 

3,389

9

(24)

3,374

Securities issued by Central Banks

 

-

-

-

-

Securities issued by credit institutions

 

98

2

-

100

Securities issued by other issuers

 

3,124

24

(48)

3,100

Turkey

 

4,033

17

(293)

3,756

Turkey Government and other Turkish government agency debt securities

 

3,893

17

(290)

3,620

Securities issued by Central Banks

 

-

-

-

-

Securities issued by credit institutions

 

140

-

(4)

136

Securities issued by other issuers

 

-

-

-

-

Other countries

 

11,845

403

(98)

12,150

Other foreign governments and other government agency debt securities

 

6,659

237

(56)

6,840

Securities issued by Central Banks

 

1,278

3

(7)

1,273

Securities issued by credit institutions

 

1,715

117

(18)

1,814

Securities issued by other issuers

 

2,194

46

(16)

2,224

Total

 

59,667

1,608

(558)

60,718

(*)   The amortized cost includes portfolio gains/losses linked to insurance contracts in which the policyholder assumes the risk in case of redemption.  

F-33 


 

  

Financial assets designated at fair value through other comprehensive income: Debt Securities. December 2018 (Millions of Euros)

 

 

Amortized

Cost (*)

Unrealized

Gains

Unrealized

Losses

Fair

Value

Domestic Debt Securities

 

18,802

761

(10)

19,553

Spanish Government and other Spanish government agency debt securities

 

17,205

661

(9)

17,857

Securities issued by Central Banks

 

-

-

-

-

Securities issued by credit institutions

 

793

63

-

855

Securities issued by other issuers

 

804

37

(1)

841

Foreign Debt Securities

 

34,521

392

(758)

34,157

Mexico

 

6,299

6

(142)

6,163

Mexican Government and other Mexican government agency debt securities

 

5,286

4

(121)

5,169

Securities issued by Central Banks

 

-

-

-

-

Securities issued by credit institutions

 

35

-

(1)

34

Securities issued by other issuers

 

978

2

(20)

961

The United States

 

14,507

47

(217)

14,338

Government securities

 

11,227

37

(135)

11,130

US Treasury and other US Government agencies

 

7,285

29

(56)

7,258

States and political subdivisions

 

3,942

8

(79)

3,872

Securities issued by Central Banks

 

-

-

-

-

Securities issued by credit institutions

 

49

1

-

50

Securities issued by other issuers

 

3,231

9

(82)

3,158

Turkey

 

4,164

20

(269)

3,916

Turkey Government and other Turkish government agency debt securities

 

4,007

20

(256)

3,771

Securities issued by Central Banks

 

-

-

-

-

Securities issued by credit institutions

 

157

-

(13)

145

Securities issued by other issuers

 

-

-

-

-

Other countries

 

9,551

319

(130)

9,740

Other foreign governments and other government agency debt securities

 

4,510

173

(82)

4,601

Securities issued by Central Banks

 

987

2

(4)

986

Securities issued by credit institutions

 

1,856

111

(20)

1,947

Securities issued by other issuers

 

2,197

33

(25)

2,206

Total

 

53,323

1,153

(768)

53,709

(*)   The amortized cost includes portfolio gains/losses linked to insurance contracts in which the policyholder assumes the risk in case of redemption.  

F-34 


 

The credit ratings of the issuers of debt securities as of June 30, 2019 and December 31, 2018, are as follows:

Debt Securities by Rating

 

June

 2019 

December

 2018 

 

Fair Value

(Millions of Euros)

%

Fair Value

(Millions of Euros)

%

AAA

1,785

2.9%

531

1.0%

AA+

8,848

14.6%

13,100

24.4%

AA

257

0.4%

222

0.4%

AA-

307

0.5%

409

0.8%

A+

2,453

4.0%

632

1.2%

A

578

1.0%

687

1.3%

A-

11,389

18.8%

18,426

34.3%

BBB+

22,439

37.0%

9,195

17.1%

BBB

3,947

6.5%

4,607

8.6%

BBB-

1,868

3.1%

1,003

1.9%

BB+ or below

4,706

7.8%

4,453

8.3%

Without rating

2,140

3.5%

445

0.8%

Total

60,718

100%

53,709

100%

12.3 Equity instruments

The breakdown of the balance under the heading "Equity instruments at fair value through other comprehensive income" of the accompanying condensed interim consolidated financial statements as of June 30, 2019 and December 31, 2018, is as follows:

Financial assets designated at fair value through other comprehensive income: Equity instruments. June 2019 (Millions of Euros)

 

Amortized Cost

Unrealized

Gains

Unrealized

Losses

Fair

 Value 

Equity instruments listed

2,274

71

(254)

2,091

Listed Spanish company shares

2,172

-

(242)

1,930

Listed foreign company shares

102

71

(13)

161

United States

30

40

-

70

Mexico

1

28

-

29

Turkey

3

-

(1)

2

Other countries

68

2

(12)

59

Unlisted equity instruments

459

63

(1)

521

Unlisted Spanish company shares

6

1

-

6

Unlisted foreign companies shares

454

62

(1)

515

United States

389

28

-

416

Mexico

-

-

-

-

Turkey

5

4

-

9

Other countries

59

31

(1)

89

Total

2,734

134

(255)

2,613

 

Financial assets designated at fair value through other comprehensive income: Equity Instruments.

  December 2018 (Millions of Euros)

 

Amortized Cost

Unrealized

Gains

Unrealized

Losses

Fair

Value

Equity instruments listed

2,262

43

(222)

2,083

Listed Spanish company shares

2,172

-

(210)

1,962

Listed foreign company shares

90

43

(12)

121

United States

20

17

-

37

Mexico

1

25

-

26

Turkey

3

-

(1)

2

Other countries

66

1

(11)

56

Unlisted equity instruments

459

55

(1)

513

Unlisted Spanish company shares

6

1

-

7

Unlisted foreign companies shares

453

54

(1)

506

United States

388

23

-

411

Mexico

-

-

-

-

Turkey

6

4

-

10

Other countries

59

27

(1)

85

Total

2,721

98

(223)

2,595

F-35 


 

12.4 Gains/losses

Debt securities

The changes in the gains/losses (net of taxes) recognized during the six months ended June 30, 2019 and in the year ended December 31, 2018 under the equity heading “Accumulated other comprehensive income – Items that may be reclassified to profit or loss - Financial assets at fair value through other comprehensive income” in the accompanying consolidated balance sheets are as follows:

Accumulated other comprehensive income-Items that may be reclassified to profit or loss - Financial assets at fair value through other comprehensive income  (Millions of Euros)

 

Notes

June

 2019 

December

 2018 

Balance at the beginning

 

943

1,557

Effect of changes in accounting policies (IFRS 9)

 

 

(58)

Valuation gains and losses

 

1,007

(640)

Amounts transferred to income

 

(27)

(137)

Other reclassifications

 

-

-

Income tax

 

(284)

221

Balance at the end

27

1,639

943

Equity instruments

The changes in the gains/losses (net of taxes) recognized during the six months ended June 30, 2019 and in the year ended December 31, 2018 under the equity heading “Accumulated other comprehensive income – Items that will not be reclassified to profit or loss - Fair value changes of equity instruments measured at fair value through other comprehensive income” in the accompanying consolidated balance sheets are as follows:

Accumulated other comprehensive income-Items that may be reclassified to profit or loss - Financial assets at fair value through other comprehensive income  (Millions of Euros)

 

Notes

June

 2019 

December

 2018 

Balance at the beginning

 

(155)

84

Effect of changes in accounting policies (IFRS 9)

 

 

(40)

Valuation gains and losses

 

(1)

(174)

Amounts transferred to income

 

-

-

Other reclassifications

 

-

-

Income tax

 

(7)

(25)

Balance at the end

27

(164)

(155)

F-36 


 

13.   Financial assets at amortized cost

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to the nature of the financial instrument, is as follows:

Financial assets at amortized cost (Millions of Euros)

 

June 2019

December 2018

Debt securities

37,354

32,530

Of which: Impairment losses

(58)

(51)

Loans and advances to central banks

5,575

3,941

Of which: Impairment losses

(7)

(6)

Loans and advances to credit institutions

10,846

9,163

Of which: Impairment losses

(16)

(12)

Loans and advances to customers

377,155

374,027

Government

29,075

28,114

Other financial corporations

9,342

9,468

Non-financial corporations

163,876

163,922

Other

174,862

172,522

Of which: Impairment losses

(12,151)

(12,199)

Total

430,930

419,660

14.   Hedging derivatives and fair value changes of the hedged items in portfolio hedges of interest rate risk

The balance of these headings in the accompanying consolidated balance sheets is as follows:

Derivatives – Hedge accounting and fair value changes of the hedged items in portfolio hedge of interest rate risk (Millions of Euros)

 

June

2019

December

2018

ASSETS

 

 

Hedging derivatives

3,105

2,892

Fair value changes of the hedged items in portfolio hedges of interest rate risk

40

(21)

LIABILITIES

 

 

Hedging derivatives

3,281

2,680

Fair value changes of the hedged items in portfolio hedges of interest rate risk

-

-

15.    Investments in joint ventures, associates  

The breakdown of the balance of “Investments in joint ventures and associates” in the accompanying consolidated balance sheets is as follows:  

Joint ventures and associates. Breakdown by entities (Millions of Euros)

 

June

2019

December

2018

Joint ventures  

179

173

Associates

1,459

1,405

Total

1,638

1,578

  

F-37 


 

16.   Tangible assets

The breakdown and movement of the balance and changes of this heading in the accompanying consolidated balance sheets, according to the nature of the related items, is as follows:

Tangible Assets. Breakdown by Type of Asset.  (Millions of Euros)

 

 

June

2019

December

2018

Property plant and equipment

 

10,084

7,066

For own use

 

9,808

6,756

Land and buildings

 

6,086

5,939

Work in progress

 

67

70

Furniture, fixtures and vehicles

 

6,240

6,314

Right to use assets

 

3,454

 

Accumulated depreciation

 

(5,693)

(5,350)

Impairment

 

(346)

(217)

Leased out under an operating lease

 

276

310

Assets leased out under an operating lease

 

353

386

Accumulated depreciation

 

(77)

(76)

Impairment

 

-

-

Investment property

 

218

163

Building rental

 

202

195

Other

 

4

5

Right to use assets

 

53

 

Accumulated depreciation

 

(13)

(11)

Impairment

 

(27)

(27)

Total

 

10,302

7,229

The change is mainly due to the implementation of IFRS 16 on January 1, 2019 (see Note 2.1).

The right to use asset consists mainly of the rental of commercial real estate premises for central services and the network branches located in the countries where the Group operates. The clauses included in rental contracts correspond to a large extent to rental contracts under normal market conditions in the country where the property is rented. From January 1 to June 30, 2019, there have been no significant changes in the right to use assets for leases.

17.   Intangible assets

17.1  Goodwill

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to the cash-generating units (CGUs) to which it has been allocated, is as follows:  

Goodwill. Breakdown by CGU and changes of the period (Millions of Euros)

 

 

The United States

Turkey

Mexico

Colombia

Chile

Other

Total

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2017

 

4,837

509

493

168

32

23

6,062

Additions

 

-

-

-

-

-

-

-

Exchange difference

 

229

(127)

26

(7)

(3)

-

118

Impairment

 

-

-

-

-

-

-

-

Other

 

-

-

-

-

-

-

-

Balance as of December 31, 2018

 

5,066

382

519

161

29

23

6,180

Additions

 

-

-

-

-

-

-

-

Exchange difference

 

31

(29)

16

5

1

(1)

23

Impairment

 

-

-

-

-

-

-

-

Other

 

-

-

-

-

-

-

-

Balance as of June 30, 2019

 

5,097

353

535

166

30

22

6,203

F-38 


 

Impairment Test

As mentioned in Note 2.2.8 of the consolidated financial statements for the year 2018, the CGUs to which goodwill has been allocated are periodically tested for impairment by including the allocated goodwill in their carrying amount. This analysis is performed at least annually and whenever there is any indication of impairment. As of and for the six months ended June 30, 2019, no indicators of impairment have been identified in any of the main CGUs.

17.2  Other intangible assets  

The breakdown of the balance and changes of this heading in the accompanying consolidated balance sheets, according to the nature of the related items, is as follows:

Other intangible assets (Millions of Euros)

 

 

June 2019

December 2018

Computer software acquisition expense

 

1,601

1,605

Other intangible assets with an infinite useful life

 

12

11

Other intangible assets with a definite useful life

 

446

518

Total

 

2,059

2,134

18.   Tax assets and liabilities

18.1 Consolidated tax group

Pursuant to current legislation, BBVA consolidated tax group in Spain includes the Bank (as the parent company) and its Spanish subsidiaries that meet the requirements provided for under Spanish legislation regulating the taxation regime for the consolidated profit of corporate groups.

The Group’s non-Spanish banks and subsidiaries file tax returns in accordance with the tax legislation in force in each country.

18.2 Current and deferred taxes

The balance under the heading "Tax assets" in the accompanying consolidated balance sheets includes current and deferred tax assets. The balance under the “Tax liabilities” heading includes the Group’s various current and deferred tax liabilities. The details of the mentioned tax assets and liabilities are as follows:

Tax assets and liabilities (Millions of Euros)

 

 

June 2019

December 2018

Tax assets

 

 

 

Current tax assets

 

1,882

2,784

Deferred tax assets

 

15,519

15,316

Total

 

17,401

18,100

Tax Liabilities

 

 

 

Current tax liabilities

 

1,074

1,230

Deferred tax liabilities

 

2,323

2,046

Total

 

3,397

3,276

F-39 


 

19.   Other assets and liabilities

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:

Other assets and liabilities: (Millions of Euros)

 

 

June 2019

December 2018

Assets

 

0

0

Insurance contracts linked to pensions

 

-

-

Inventories

 

592

635

Real estate

 

591

633

Others

 

1

2

Transactions in progress

 

228

249

Accruals

 

1,032

702

Prepaid expense

 

577

465

Other prepayments and accrued income

 

455

237

Other items

 

2,602

3,886

Total other assets

 

4,454

5,472

Liabilities

 

0

0

Transactions in progress

 

126

39

Accruals

 

2,428

2,558

Accrued expense

 

1,753

2,119

Other accrued expense and deferred income

 

675

439

Other items

 

2,222

1,704

Total other liabilities

 

4,776

4,301

  

20.   Non-current assets and disposal groups held for sale

The composition of the balance under the heading “Non-current assets and disposal groups classified as held for sale” in the accompanying consolidated balance sheets, broken down by the origin of the assets, is as follows:

Non-current assets and disposal groups classified as held for sale. Breakdown by items (Millions of Euros)

 

 

June 2019

December 2018

Foreclosures and recoveries

 

1,771

2,211

Other assets from tangible assets

 

274

433

Business sale - Assets

 

29

29

Accrued amortization (*)

 

(32)

(44)

Impairment losses

 

(537)

(628)

Total non-current assets and disposal groups classified as held for sale

 

1,505

2,001

(*)   Accumulated amortization until related asset was reclassified as “non-current assets and disposal groups held for sale”.

21.   Financial liabilities at amortized cost

21.1  Breakdown of the balance

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:

Financial liabilities measured at amortized cost (Millions of Euros)

 

 

June 2019

December 2018

Deposits

 

436,561

435,229

Deposits from central banks

 

28,558

27,281

Deposits from credit institutions

 

32,899

31,978

Customer deposits

 

375,104

375,970

Debt certificates

 

62,685

61,112

Other financial liabilities

 

14,692

12,844

Total

 

513,937

509,185

F-40 


 

21.2  Deposits from central banks

Deposits from central banks (Millions of Euros)

 

 

June 2019

December 2018

Demand deposits

 

11

20

Time deposits

 

27,700

26,886

Repurchase agreements

 

847

375

Total

 

28,558

27,281

21.3  Deposits from credit institutions

The breakdown of the balance under this heading in the consolidated balance sheets, according to the nature of the financial instruments, is as follows:

Deposits from credit institutions (Millions of Euros)

 

 

June 2019

December 2018

Demand deposits

 

9,859

8,370

Time deposits

 

17,735

17,658

Repurchase agreements

 

3,366

4,593

Subordinated deposits

 

192

191

Other deposits

 

1,747

1,166

Total

 

32,899

31,978

The breakdown by geographical area and the nature of the related instruments of this heading in the accompanying consolidated balance sheets is as follows:

Deposits from credit institutions. June 2019 (Millions of Euros)

 

Demand Deposits

Time Deposits & other

Repurchase Agreements

Total

Spain

2,502

2,109

336

4,947

The United States

2,496

3,952

-

6,448

Mexico

371

675

413

1,459

Turkey

337

553

4

894

South America

435

1,789

-

2,224

Rest of Europe

3,519

6,289

2,613

12,420

Rest of the world

199

4,308

-

4,508

Total

9,859

19,674

3,366

32,899

 

F-41 


 

Deposits from credit institutions. December 2018 (Millions of Euros)

 

Demand Deposits

Time Deposits & other

Repurchase Agreements

Total

Spain

1,981

2,527

55

4,563

The United States

1,701

2,677

-

4,379

Mexico

280

286

-

566

Turkey

651

669

4

1,323

South America

442

1,892

-

2,335

Rest of Europe

3,108

6,903

4,534

14,545

Rest of the world

207

4,061

-

4,268

Total

8,370

19,015

4,593

31,978

21.4 Customer deposits

The breakdown of this heading in the accompanying consolidated balance sheets, by type of financial instrument, is as follows:

Customer deposits (Millions of Euros)

 

 

June 2019

December 2018

Demand deposits

 

269,010

260,573

Time deposits

 

98,634

106,385

Repurchase agreements

 

237

1,209

Subordinated deposits

 

211

220

Other deposits

 

7,012

7,582

Total

 

375,104

375,970

Of which:

 

 

 

  In Euros

 

185,408

184,934

  In foreign currency

 

189,696

191,036

 

F-42 


 

The breakdown by geographical area of this heading in the accompanying consolidated balance sheets, by type of instrument is as follows:

Customer deposits. June 2019 (Millions of Euros)

 

Demand Deposits

Time Deposits & other

Repurchase Agreements

Total

Spain

143,897

25,848

2

169,747

The United States

41,096

20,898

-

61,994

Mexico

40,269

13,052

231

53,552

Turkey

12,239

21,459

4

33,702

South America

24,047

14,870

-

38,917

Rest of Europe

6,572

8,700

-

15,272

Rest of the world

890

1,030

-

1,919

Total

269,010

105,857

237

375,104

 

Customer deposits. December 2018 (Millions of Euros)

 

Demand Deposits

Time Deposits and others

Repurchase Agreements

Total

Spain

138,236

28,165

3

166,403

The United States

41,222

21,317

-

62,539

Mexico

38,383

11,837

770

50,991

Turkey

10,856

22,564

7

33,427

South America

23,811

14,159

-

37,970

Rest of Europe

7,233

14,415

429

22,077

Rest of the world

831

1,731

-

2,563

Total

260,573

114,188

1,209

375,970

 

F-43 


 

21.5  Debt certificates  

The breakdown of the balance under this heading, by currency, is as follows:

Debt certificates (Millions of Euros)

 

June 2019

December 2018

In Euros

37,809

37,436

Promissory bills and notes

475

267

Non-convertible bonds and debentures

10,744

9,638

Covered bonds (*)

15,781

15,809

Hybrid financial instruments

613

814

Securitization bonds

1,519

1,630

Wholesale funding

735

142

Subordinated liabilities

7,942

9,136

Convertible

5,000

5,490

Convertible perpetual securities

5,000

5,490

Convertible subordinated debt

-

-

Non-convertible

2,942

3,647

Preferred stock

85

107

Other subordinated liabilities

2,858

3,540

In foreign currencies

24,876

23,676

Promissory bills and notes

2,222

3,237

Non-convertible bonds and debentures

10,570

9,335

Covered bonds (*)

559

569

Hybrid financial instruments

1,723

1,455

Securitization bonds

23

38

Wholesale funding

1,014

544

Subordinated liabilities

8,764

8,499

Convertible

880

873

Convertible perpetual securities

880

873

Convertible subordinated debt

-

-

Non-convertible

7,884

7,626

Preferred stock

74

74

Other subordinated liabilities

7,810

7,552

  Total

62,685

61,112

(*)   Including mortgage-covered bonds.

21.6  Other financial liabilities

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Other financial liabilities (Millions of Euros)

 

 

June 2019

December 2018

Lease liabilities

 

3,415

 

Creditors for other financial liabilities

 

3,237

2,891

Collection accounts

 

2,356

4,305

Creditors for other payment obligations

 

5,683

5,648

Total

 

14,692

12,844

Lease liabilities are recognized after the implementation of IFRS 16 on January 1, 2019 (see Note 2.1).

F-44 


 

22.   Assets and Liabilities under insurance and reinsurance contracts

The heading “Assets under reinsurance and insurance contracts” in the accompanying consolidated balance sheets includes the amounts that the consolidated insurance entities are entitled to receive under the reinsurance contracts entered into by them with third parties and, more specifically, the share of the reinsurer in the technical provisions recognized by the consolidated insurance subsidiaries. As of June 30, 2019 and December 31, 2018, the balance under this heading amounted to €371 million and €366 million, respectively.

The breakdown of the balance under the heading “Liabilities under reinsurance and insurance contracts” is as follows:

Technical reserves (Millions of Euros)

 

June 2019

December 2018

Mathematical reserves

9,224

8,504

Provision for unpaid claims reported

656

662

Provisions for unexpired risks and other provisions

754

668

Total

10,634

9,834

23.   Provisions

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, based on type of provisions, is as follows:

Provisions. Breakdown by concepts (Millions of Euros)

 

 

June 2019

December 2018

Provisions for pensions and similar obligations

 

4,745

4,787

Other long term employee benefits

 

58

62

Provisions for taxes and other legal contingencies

 

689

686

Provisions for contingent risks and commitments

 

639

636

Other provisions (*)

 

500

601

Total

 

6,631

6,772

(*)   Individually insignificant provisions or contingencies, for various concepts in different geographies.

Ongoing legal proceedings and litigation

The financial sector faces an environment of increasing regulatory and litigious pressure. In this environment, the different Group’s entities are often parties to individual or collective legal proceedings arising from the ordinary activity of their businesses. In accordance with the procedural status of these proceedings and according to the criteria of the attorneys who manage them, BBVA considers that none of them is material, individually or in aggregate, and that no significant impact derives from them neither in the results of operations nor on liquidity, nor in the financial position at a consolidated level of the Group, as at the level of the standalone Bank. The Group Management considers that the provisions made in connection with these legal proceedings are adequate. In addition, as mentioned in Note 6.1 “Risk factors”, the Group is subject or may be subject in the future to a series of legal and regulatory procedures and actions which, in case of a negative result, could have an adverse impact on the Group’s businesses, financial position and results of operations.  

F-45 


 

  

24.   Post-employment and other employee benefit commitments

The Group sponsors defined-contribution plans for the majority of its active employees with the plans in Spain and Mexico being the most significant. Most defined benefit plans are closed to new employees with liabilities relating largely to retired employees, the most significant being those in Spain, Mexico, the United States and Turkey. In Mexico, the Group provides medical benefits to a closed group of employees and their family members, both active service and in retirees.

The amounts relating to the post-employment benefit commitments recorded in the consolidated income statement for the six month periods ended June 30, 2019 and 2018 are as follows:

Consolidated income statement impact (Millions of Euros)

 

Notes

June 2019

June 2018

Interest income and expense

 

38

41

Personnel expense

 

79

81

Defined contribution plan expense

39.1

55

51

Defined benefit plan expense

39.1

24

30

Provisions, net

41

127

57

Total impact on income statement: expense (income)

 

244

179

25.   Common stock

As of June 30, 2019 and December 31, 2018, BBVA’s common stock amounted to €3,267,264,424.20 divided into 6,667,886,580 fully subscribed and paid-up registered shares, all of the same class and series, at €0.49 par value each, represented through book-entries. All of the Bank shares carry the same voting and dividend rights, and no single stockholder enjoys special voting rights. Each and every share is part of the Bank’s common stock.

BBVA is not aware of any direct or indirect interests through which control of the Bank may be exercised. BBVA has not received any information on stockholder agreements including the regulation of the exercise of voting rights at its annual general meetings or restricting or placing conditions on the free transferability of BBVA shares. BBVA does not know any agreement that could give rise to changes in the control of the Bank.

26.   Retained earnings, revaluation reserves and other reserves  

The breakdown of the balance under this heading in the accompanying consolidated balance sheet is as follows:

Retained earnings, revaluation reserves and other reserves  (Millions of Euros)

 

June 2019

December 2018

Retained earnings

26,428

23,018

Revaluation reserves

1

3

Other reserves

(94)

(58)

Total

26,336

22,963

 

 

F-46 


 

  

27.   Accumulated other comprehensive income (loss)

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Accumulated other comprehensive income (Millions of Euros)

 

Notes

June 2019

December 2018

Items that will not be reclassified to profit or loss

 

(1,531)

(1,284)

Actuarial gains or losses on defined benefit pension plans

 

(1,393)

(1,245)

Non-current assets and disposal groups classified as held for sale

 

-

-

Share of other recognized income and expense of investments in subsidiaries, joint ventures and associates

 

-

-

Fair value changes of equity instruments measured at fair value through other comprehensive income

12.4

(164)

(155)

Hedge ineffectiveness of fair value hedges for equity instruments measured at fair value through other comprehensive income

 

-

-

Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk

 

25

116

Items that may be reclassified to profit or loss

 

(5,392)

(5,932)

Hedge of net investments in foreign operations (effective portion)

 

(537)

(218)

Foreign currency translation

 

(6,535)

(6,643)

Hedging derivatives. Cash flow hedges (effective portion)

 

50

(6)

Fair value changes of debt instruments measured at fair value through other comprehensive income

 

12.4

1,639

943

Hedging instruments (non-designated items)

 

-

-

Non-current assets and disposal groups classified as held for sale

 

-

1

Share of other recognized income and expense of investments in subsidiaries, joint ventures and associates

 

(9)

(9)

Total

 

(6,923)

(7,216)

The balances recognized under these headings are presented net of tax.

28.   Non-controlling interest

The table below is a breakdown by groups of consolidated entities of the balance under the heading “Minority interests (non-controlling interest)” of total equity in the accompanying consolidated balance sheets is as follows:

Non-controlling interests: Breakdown by subgroups (Millions of Euros)

 

June 2019

December 2018

Garanti BBVA

4,018

4,058

BBVA Peru

1,206

1,167

BBVA Argentina

426

352

BBVA Colombia

70

67

BBVA Venezuela

69

67

Other entities

50

53

Total

5,839

5,764

These amounts are broken down by groups of consolidated entities under the heading “Attributable to minority interests (non-controlling interest)” in the accompanying consolidated income statements:

Profit attributable to non-controlling interests (Millions of Euros)

 

June 2019

June 2018

Garanti BBVA

291

383

BBVA Peru

115

99

BBVA Argentina

60

12

BBVA Colombia

5

5

BBVA Venezuela

2

-

BBVA Chile

2

2

Other entities

-

26

Total

475

528

F-47 


 

  

29.   Capital base and capital management

The eligible capital resources and the risk weighted assets of the Group (phased-in), in accordance with the applicable regulation, considering the entities in scope required by the regulation, as of June 30, 2019 and December 31, 2018 are shown below:

Capital ratios (phased-in)

 

 

June 2019 (*)

December 2018

Eligible Common Equity Tier 1 capital (million euros) (a)

 

42,328

40,313

Eligible Additional Tier 1 capital (million euros) (b)

 

6,669

5,634

Eligible Tier 2 capital (million euros) (c)

 

7,944

8,756

Risk Weighted Assets (million euros) (d)

 

360,069

348,264

Common Tier 1 capital ratio (CET 1) (A)=(a)/(d)

 

11.76%

11.58%

Additional Tier 1 capital ratio (AT 1) (B)=(b)/(d)

 

1.85%

1.62%

Tier 1 capital ratio (Tier 1) (A)+(B)

 

13.61%

13.19%

Tier 2 capital ratio (Tier 2) (C)=(c)/(d)

 

2.21%

2.51%

Total capital ratio (A)+(B)+(C)

 

15.81%

15.71%

(*)   Provisional data.

Leverage ratio

 

 

June 2019 (*)

December 2018

Tier 1 (millions of euros) (a)

 

48,997

45,947

Exposure to leverage ratio (millions of euros) (b)

 

731,125

705,299

Leverage ratio (a)/(b) (percentage)

 

6.70%

6.51%

(*)   Provisional data.  

F-48 


 

  

30.   Commitments and guarantees given

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:

Loan commitments, financial guarantees and other commitments (Millions of Euros)

 

Notes

June 2019

December 2018

Loan commitments given

 

122,938

118,959

Of which: defaulted

 

211

247

Central banks

 

3

-

General governments

 

1,688

2,318

Credit institutions

 

9,966

9,635

Other financial corporations

 

5,716

5,664

Non-financial corporations

 

60,845

58,405

Households

 

44,720

42,936

Financial guarantees given (*)

 

15,526

16,454

Of which: defaulted

 

318

332

Central banks

 

-

2

General governments

 

151

159

Credit institutions

 

1,417

1,274

Other financial corporations

 

582

730

Non-financial corporations

 

13,069

13,970

Households

 

307

319

Other commitments given

 

36,158

35,098

Of which: defaulted

 

389

408

Central banks

 

5

1

General governments

 

605

248

Credit institutions

 

7,339

5,875

Other financial corporations

 

3,479

2,990

Non-financial corporations

 

24,477

25,723

Households

 

252

261

Total Loan commitments and financial guarantees

6.2.1

174,621

170,511

(*)   Non performing financial guarantees given amounted to €707 and €740 million, respectively, as of June 30,   2019 and December 31, 2018, respectively.

As of June 30, 2019, the provisions for loan commitments given, financial guarantees given and other commitments given, recorded in the consolidated balance sheet amounted €321 million, €176 million and €141 million, respectively.

Since a significant portion of the amounts above will expire without any payment being made by the consolidated entities, the aggregate balance of these commitments cannot be considered the actual future requirement for financing or liquidity to be provided by the BBVA Group to third parties.

 

 

F-49 


 

  

31.   Other contingent assets and liabilities

As of June 30, 2019 and December 31, 2018, there were no material contingent assets or liabilities other than those disclosed in the accompanying notes to the condensed interim consolidated financial statements.

32.    Net interest income

32.1.  Interest and other income

The breakdown of the interest and other income recognized in the accompanying consolidated income statement is as follows:

Interest and other similar income. Breakdown by origin (Millions of Euros)

 

June 2019

June 2018

Financial assets held for trading

1,071

813

Financial assets designated at fair value through profit or loss

77

71

Financial assets at fair value through other comprehensive income

975

744

Financial assets at amortized cost

12,956

11,985

Adjustments of income as a result of hedging transactions

(38)

129

Other income

143

147

Insurance activity

494

528

Total

15,678

14,418

32.2.  Interest expense

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Interest expense (Millions of Euros)

 

June 2019

June 2018

Financial liabilities held for trading

746

135

Financial liabilities designated at fair value through profit or loss

3

-

Financial liabilities at amortized cost (*)

5,613

4,939

Adjustments of expense as a result of hedging transactions

(136)

300

Insurance activity

338

366

Other expense

127

89

Total

6,691

5,828

 

(*)   Includes €58 million in June 2019 corresponding to interest expense on leases (see Note 21.6).

33.   Dividend income

The balances for this heading in the accompanying consolidated income statements correspond to dividends on shares and equity instruments other than those from shares in entities accounted for using the equity method (see Note 34), as can be seen in the breakdown below:

Dividend income (Millions of Euros)

 

 

June 2019

June 2018

Dividends from:

 

 

 

Non-trading financial assets mandatorily at fair value through profit or loss

 

25

11

Financial assets at fair value through other comprehensive income

 

78

73

Total

 

103

83

F-50 


 

34.   Share of profit or loss of entities accounted for using the equity method

Net income from “Investments in entities accounted for using the equity method” resulted in a negative impact of €19 million for the six months ended June 30, 2019, compared with the positive impact of €13 million recorded for the six months ended June 30, 2018.

35.   Fee and commission income and expense

The breakdown of the balance under these heading in the accompanying consolidated income statements is as follows:

Fee and commission income (Millions of Euros)

 

 

June 2019

June 2018

Bills receivables

 

19

23

Demand accounts

 

232

223

Credit and debit cards, ATMs and TPV

 

1,538

1,382

Checks

 

100

92

Transfers and other payment orders

 

319

295

Insurance product commissions

 

87

96

Commitment fees

 

60

117

Contingent risks

 

196

195

Asset management

 

511

518

Securities fees

 

158

192

Custody securities

 

59

62

Other fees and commissions

 

381

357

Total

 

3,661

3,553

 

The breakdown of fee and commission expense under these heading in the accompanying consolidated income statements is as follows:

Fee and commission expense (Millions of Euros)

 

 

June 2019

June 2018

Credit and debit cards

 

798

706

Transfers and other payment orders

 

65

49

Commissions for selling insurance

 

26

33

Other fees and commissions

 

302

285

Total

 

1,191

1,073

F-51 


 

36.   Gains (losses) on financial assets and liabilities, net and exchange differences

The breakdown of the balance under this heading, by source of the related items, in the accompanying consolidated income statement is as follows:

Gains (losses) on financial assets and liabilities and exchange differences: Breakdown by heading of the consolidated income statements (Millions of Euros)

 

 

June 2019

June 2018

Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net

 

67

130

Financial assets at amortized cost

 

15

21

Other financial assets and liabilities

 

53

109

Gains or losses on financial assets and liabilities held for trading, net

 

173

329

Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net

 

98

3

Gains or losses on financial assets and liabilities designated at fair value through profit or loss, net

 

(3)

107

Gains or losses from hedge accounting, net

 

73

51

Subtotal gains or (losses) on financial assets and liabilities

 

408

621

Exchange differences

 

134

74

Total

 

542

696

The breakdown of the balance (excluding exchange rate differences) under this heading in the accompanying income statements by the nature of financial instruments is as follows:

Gains (losses) on financial assets and liabilities: Breakdown by nature of the financial instrument (Millions of Euros)

 

 

June 2019

June 2018

Debt instruments

 

451

221

Equity instruments

 

764

31

Loans and advances to customers

 

92

(85)

Trading derivatives and hedge accounting

 

(653)

192

Customer deposits

 

32

219

Other

 

(277)

42

Total

 

408

621

 

 

F-52 


 

37.   Other operating income and expense

The breakdown of the balance under the heading “Other operating income” in the accompanying consolidated income statements is as follows:

Other operating income (Millions of Euros)

 

 

June 2019

June 2018

Gains from sales of non-financial services

 

129

246

Other operating income

 

208

307

Total

 

337

554

The breakdown of the balance under the heading “Other operating expense” in the accompanying consolidated income statements is as follows:

Other operating expense (Millions of Euros)

 

 

June 2019

June 2018

Change in inventories

 

59

165

Other (*)

 

936

897

Total

 

995

1,062

(*)   Includes the contributions to guaranteed banks deposits funds and hyperinflation adjustment (see Note 1.3)

 

 

F-53 


 

38.   Income and expense from insurance and reinsurance contracts

The detail of the headings “Income and expense from insurance and reinsurance contracts” in the accompanying consolidated income statements is as follows:

Other operating income and expense on insurance and reinsurance contracts (Millions of Euros)

 

 

June 2019

June 2018

Income on insurance and reinsurance contracts

 

1,547

1,601

Expenses on insurance and reinsurance contracts

 

(983)

(1,091)

Total

 

565

510

39.   Administration costs

39.1.  Personnel expense

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Personnel expense (Millions of Euros)

 

Notes

June 2019

June 2018

Wages and salaries

 

2,435

2,432

Social security costs

 

396

369

Defined contribution plan expense

24

55

51

Defined benefit plan expense

24

24

30

Other personnel expense

 

222

223

Total

 

3,131

3,104

The breakdown of the average number of employees in the BBVA Group as of June 30, 2019 and 2018 is as follows:

Average number of employees

 

 

June 2019

June 2018

BBVA Group

 

125,907

131,881

Men

 

58,203

60,623

Women

 

67,704

71,258

Of which BBVA, S.A.:

 

25,879

26,356

Men

 

12,842

13,178

Women

 

13,037

13,178

 

 

F-54 


 

  

39.2.  Other administrative expense

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Other administrative expense (Millions of Euros)

 

 

June 2019

June 2018

Technology and systems

 

604

556

Communications

 

109

119

Advertising

 

158

174

Property, fixtures and materials

 

266

492

Of which: Rent expense (*)

 

52

282

Taxes other than income tax

 

203

215

Other expense

 

612

638

Total

 

1,953

2,193

(*)   The change is mainly due to the implementation of IFRS 16 on January 1, 2019 (see Note 2.1).

40.   Depreciation and amortization  

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:  

Depreciation and amortization (Millions of Euros)

 

June 2019

June 2018

Tangible assets

488

290

For own use

294

289

Investment properties

2

1

Right-of-use assets (*)

192

 

Other Intangible assets

302

309

Total

790

599

(*)   The change is mainly due to the implementation of IFRS 16 on January 1, 2019 (see Note 2.1).

41.   Provisions or (reversal) of provisions

In the six months ended June 30, 2019 and 2018 the net provisions recognized in this income statement line item were as follows:

Provisions or (reversal) of provisions (Millions of Euros)

 

Notes

June 2019

June 2018

Pensions and other post employment defined benefit obligations

24

127

57

Commitments and guarantees given

 

7

(102)

Pending legal issues and tax litigation

 

75

124

Other Provisions

 

51

105

Total

 

261

184

F-55 


 

42.   Impairment or (reversal) of impairment on financial assets not measured at fair value through profit or loss

The breakdown of Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss by the nature of those assets in the accompanying consolidated income statements is as follows:

Impairment or (reversal) of impairment on financial assets not measured at fair value through profit or loss (Millions of Euros)

 

 

June 2019

June 2018

Financial assets at fair value through other comprehensive income - debt securities

 

5

(12)

Financial assets at amortized cost

 

1,772

1,618

Of which: Recovery of written-off assets

 

(534)

(317)

Total

 

1,777

1,606

43.   Impairment or (reversal) of impairment on non-financial assets  

The impairment losses on non-financial assets broken down by the nature of those assets in the accompanying consolidated income statements are as follows:

Impairment or (reversal) of impairment on non-financial assets (Millions of Euros)

 

June 2019

June 2018

Tangible assets

30

18

Intangible assets

1

3

Others  

13

(21)

Total

44

-

44.    Gains (losses) on derecognition of non financial assets and subsidiaries, net

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Gains (losses) on derecognition of non-financial assets and subsidiaries, net (Millions of Euros)

 

 

June 2019

June 2018

Gains

 

-

 

Disposal of investments in non-consolidated subsidiaries

 

-

52

Disposal of tangible assets and other

 

13

60

Losses

 

-

-

Disposal of investments in non-consolidated subsidiaries

 

-

-

Disposal of tangible assets and other

 

(6)

(32)

Total

 

8

80

45.   Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

The main items included in the balance under this heading in the accompanying consolidated income statements are as follows:

Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations (Millions of Euros)

 

 

June 2019

June 2018

Gains on sale of real estate

 

26

70

Impairment of non-current assets held for sale

 

(15)

(41)

Total

 

11

29

F-56 


 

  

46.   Related-party transactions

As financial institutions, BBVA and other entities in the Group engage in transactions with related parties in the normal course of their business. All of these transactions are not material and are carried out under normal market conditions. As of June 30, 2019, and December 31, 2018, the following are the transactions with related parties:

46.1  Transactions with significant shareholders

As of June 30, 2019 and December 31, 2018, there were no shareholders considered significant (see Note 25).

46.2  Transactions with BBVA Group entities  

The main balances in the accompanying consolidated balance sheets arising from the transactions carried out by the BBVA Group with associates and joint venture entities accounted for using the equity method are as follows:

Balances arising from transactions with entities of the Group (Millions of Euros)

 

 

June 2019

December 2018

Assets

 

 

 

Loans and advances to credit institutions

 

122

132

Loans and advances to customers

 

1,403

1,866

Liabilities

 

 

 

Deposits from credit institutions

 

2

2

Customer deposits

 

601

521

Debt certificates

 

-

-

Memorandum accounts

 

 

 

Contingent commitments

 

116

152

Other contingent commitments given

 

1,030

1,358

Financial guarantees given

 

103

78

The main balances in the accompanying consolidated income statements resulting from transactions with associates and joint venture entities that are accounted for under the equity method are as follows:

Balances of consolidated income statement arising from transactions with entities of the Group (Millions of Euros)

 

 

June 2019

June 2018

Income statement

 

 

 

Interest and other income

 

26

11

Interest expense

 

1

1

Fee and commission income

 

2

2

Fee and commission expenses

 

14

26

There were no other material effects in the consolidated financial statements arising from dealings with these entities, other than the effects from using the equity method (see Note 2.1) and from the insurance policies to cover pension or similar commitments (see Note 25) and the futures transactions arranged by BBVA Group with these entities, associates and joint ventures.

In addition, as part of its normal activity, the BBVA Group has entered into agreements and commitments of various types with shareholders of subsidiaries and associates, which have no material effects on the accompanying condensed interim consolidated financial statements.

F-57 


 

46.3  Transactions with members of the Board of Directors and Senior Management

The information on the remuneration of the members Board of Directors and Senior Management of BBVA is included in Note 47.

As of June 30, 2019 and December 31, 2018, the amount availed against the loans granted by the Group’s entities to the members of the Board of Directors amounted to €617 and €611 thousand, respectively. The amount availed against the loans by the Group’s entities to the members of Senior Management on those same dates (excluding the executive directors) amounted to €3,759 and €3,783 thousand, respectively.

As of June 30, 2019 and December 31, 2018, there were no loans granted to parties related to the members of the Board of Directors. As of June 30, 2019 and December 31, 2018 the amount availed against the loans to parties related to members of the Senior Management amounted to €61 and €69 thousand, respectively.

As of June 30, 2019, and December 31, 2018, no guarantees had been granted to any member of the Board of Directors.

As of June 30, 2019 and December 31, 2018, the amount availed against guarantees arranged with members of the Senior Management amounted to €10 and €38 thousand, respectively.

As of June 30, 2019 and December 31, 2018, no commercial loans and guarantees have been granted with parties related to the members of the Bank’s Board of Directors and the Senior Management.

46.4  Transactions with other related parties

As of June 30, 2019 and December 31, 2018, the Group did not conduct any transactions with other related parties that are not in the ordinary course of its business, which were not carried out at arm's-length market conditions and of marginal relevance; whose information is not necessary to give a true picture of the BBVA Group’s consolidated net equity, net earnings and financial situation.

 

 

F-58 


 

  

47.   Remuneration and other benefits to the Board of Directors and members of the Bank’s Senior Management

The notes accompanying the Bank's annual consolidated financial statements, corresponding to the financial year ending 31 December 2018, detail the remuneration and other benefits corresponding to the members of the Board of Directors and of Senior Management, including the description of the applicable policies and remuneration systems, and information regarding the conditions to receive remuneration and other benefits.

The General Shareholders' Meeting of the Bank held on 15 March 2019, approved a new Remuneration Policy for BBVA Directors, which while maintaining the same remuneration system as established in the previous policy, incorporates the adjustments to the contractual conditions of the Group Executive Chairman and the Chief Executive Officer resulting from the positions and functions for which they were appointed on 20 December 2018.  

On the basis of said policies and remuneration systems, information regarding the remuneration and other benefits for the members of the Board of Directors and for Senior Management corresponding to the period between the start of the financial year and 30 June 2019 is shown below.

·            Remuneration of non-executive directors

The remuneration paid to non-executive directors during the first semester of 2019 is itemised per director below:  

Remuneration for non-executive directors (Thousands of Euros)

 

Board of Directors

Executive Committee

Audit Committee

Risk and Compliance Committee

Remunerations Committee

Appointments and Corporate Governance Committee

Technology and Cybersecurity Committee

Other functions (1)

Total

Tomás Alfaro Drake

64

-

-

-

21

-

21

-

107

José Miguel Andrés Torrecillas

64

-

71

53

-

53

-

8

250

Jaime Félix Caruana Lacorte

64

83

28

53

-

-

14

-

243

Belén Garijo López

64

-

35

-

54

21

-

-

174

Sunir Kumar Kapoor

64

-

-

-

-

-

21

-

86

Carlos Loring Martínez de Irujo

64

83

-

53

21

-

-

-

223

Lourdes Máiz Carro

64

-

35

-

21

14

-

-

134

José Maldonado Ramos

64

83

-

-

-

21

-

-

169

Ana Peralta Moreno

64

-

35

-

21

-

-

-

121

Juan Pi Llorens

64

-

24

107

-

8

21

13

238

Susana Rodríguez Vidarte

64

83

-

53

-

21

-

-

222

Jan Verplancke

64

-

-

-

-

-

21

-

86

Total (2)

772

333

226

321

139

138

100

22

2,052

(1)   Amounts received during the first semester of 2019 by José Miguel Andrés Torrecillas, in his capacity as Deputy Chair of the Board of Directors, and by Juan Pi Llorens, in his capacity as Lead Independent Director, positions for which they were appointed by resolution of the Board of Directors on April 29, 2019.

(2)   Includes the amounts corresponding to the positions of member of the Board and of member of various committees during the first semester of 2019. By resolution of the Board of Directors on April 29, 2019, the functions of some Board committees were redistributed, and their names and composition were adapted to these changes.

Likewise, during the first semester of 2019, EUR 100 thousand was paid in healthcare and casualty insurance premiums to non-executive directors.

 

 

F-59 


 

·            Remuneration of executive directors

The remuneration paid to executive directors during the first semester of 2019 is itemised per director below:

Fixed remuneration (Thousands of Euros)

 

 

Group Executive Chairman

1,227

Chief Executive Officer (1)

1,090

Head of Global Economics & Public Affairs (Head of GE&PA)

417

Total

2,733

(1)   In addition, in accordance with the Remuneration Policy for BBVA Directors, during the first semester of 2019, the Chief Executive Officer received EUR 327 thousand as cash in lieu of pension and EUR 181 thousand as a mobility allowance.

Variable remuneration

 

In cash

(Thousands of Euros)

In shares

Group Executive Chairman (1)

1,091

179,593

Chief Executive Officer (2)

200

41,267

Head of GE&PA (1)

193

31,308

Total

1,483

252,168

(1)   Remuneration corresponding to the upfront portion (40%) of the Annual Variable Remuneration (AVR) for 2018 and to the deferred AVR for 2015 to be paid in 2019, along with its update in cash. For the Group Executive Chairman, this variable remuneration relates to his previous position as Chief Executive Officer.

(2)   Remuneration corresponding to the upfront portion (40%) of the AVR for the 2018 financial year. Data in thousands of euro is for information purposes. The exchange rate applied is that at the close of April 2019.

Moreover, in the first semester of 2019, remuneration in kind was paid to executive directors, including insurance premiums and other items, for a total amount of EUR 372 thousand.

·            Remuneration of members of Senior Management (*)

The remuneration paid to the Senior Management as a whole during the first semester of 2019, excluding executive directors, is itemised below:

Fixed remuneration (Thousands of Euros)

 

 

Senior Management Total

7,674

 

Variable remuneration (Thousands of Euros)

 

In cash (1)

(Thousands of Euros)

In shares (1)

Senior Management Total

2,769

437,804

(1)   Remuneration corresponding to the upfront portion (40%) of the AVR for the 2018 financial year and to the deferred AVR for 2015 to be paid in 2019, for the senior managers beneficiaries, along with its update in cash. For those members of Senior Management appointed by the Board of Directors on 20 December 2018 and 29 April 2019, this remuneration relates to their previous positions.

(*)   15 members with such status as at 30 June 2019, excluding executive directors.

Likewise, during the first semester of 2019, remuneration in kind was paid in favour of Senior Management as a whole, excluding executive directors, which included insurance premiums and other items, for a total amount of EUR 540 thousand.

·            Remuneration system with deferred delivery of shares for non-executive directors

F-60 


 

During the first semester of 2019, the following "theoretical shares" were allocated, derived from the deferred delivery of shares remuneration system for non-executive directors, equivalent to 20% of the total remuneration in cash received by each director in 2018:

 

Theoretical shares allocated in 2019

Theoretical shares accumulated as at 30 June 2019

Tomás Alfaro Drake

10,138

93,587

José Miguel Andrés Torrecillas

19,095

55,660

Jaime Félix Caruana Lacorte

9,320

9,320

Belén Garijo López

12,887

47,528

Sunir Kumar Kapoor

6,750

15,726

Carlos Loring Martínez de Irujo

17,515

116,391

Lourdes Máiz Carro

11,160

34,320

José Maldonado Ramos

15,328

94,323

Ana Peralta Moreno

5,624

5,624

Juan Pi Llorens

17,970

72,141

Susana Rodríguez Vidarte

17,431

122,414

Jan Verplancke

5,203

5,203

Total

148,421

672,237

·            Pension commitments with executive directors and members of Senior Management

Executive directors (Thousands of Euros)

 

Contributions (1)

Accumulated funds

 

Retirement

Death and disability

Group Executive Chairman

820

139

20,463

Chief Executive Officer

-

71

-

Head of GE&PA

129

75

1,271

Total

949

285

21,735

(1)   Contributions registered to fulfil the proportion of pension commitments undertaken with the executive directors corresponding to the first semester of 2019. For the Group Executive Chairman and the Head of GE&PA, these correspond to the sum of the annual retirement benefit and the death and disability premiums, as well as to the adjustment made to the discretionary pension benefits for 2018 that fall due in the 2019 financial year, once the AVR for 2018 has been determined. For the Chief Executive Officer, the registered contributions correspond exclusively to the proportion of the premiums for death and disability coverage corresponding to the first semester of 2019, as there are no commitments with the Chief Executive Officer for the retirement benefit.

Senior Management (Thousands of Euros)

 

Contributions (1)

Accumulated funds

 

Retirement

Death and disability

Senior Management Total*

1,758

381

31,099

(1)   Contributions registered to fulfil the proportion of pension commitments undertaken with the Senior Management as a whole for the first semester of 2019 corresponding to the sum of the annual contributions to cover retirement benefits, death and disability premiums, and the adjustments made to the discretionary pension benefits for 2018 that fall due in 2019, once the AVR for the year 2018 has been determined.

(*)   15 members with such status as at 30 June 2019, excluding executive directors.

F-61 


 

48.   Other information

48.1  Reporting requirements of the Spanish National Securities Market Commission (CNMV)

Dividends paid in the year

The table below presents the dividends per share paid in cash during the six months ended June 30, 2019 and 2018 (cash basis dividend, regardless of the year in which they were accrued), but without including other shareholder remuneration, such as the “Dividend Option”.

Dividends paid ("Dividend Option" not included)

 

 

June 2019

 

 

June 2018

 

 

% Over Nominal

Euros per Share

Amount (Millions of Euros)

% Over Nominal

Euros per Share

Amount (Millions of Euros)

Ordinary shares

32.65%

0.16

1,067

30.61%

0.15

1,000

Rest of shares

-

-

-

-

-

-

Total dividends paid in cash

32.65%

0.16

1,067

30.61%

0.15

1,000

Dividends with charge to income

32.65%

0.16

1,067

30.61%

0.15

1,000

Dividends with charge to reserve or share premium

-

-

-

-

-

-

Dividends in kind

-

-

-

-

-

-

Ordinary earnings by operating segment

The detail of the consolidated profit for each operating segment is as follows for the six months ended June 30, 2019 and 2018:

Profit attributable by operating segment

 

Profit/ (loss)

 

June 2019

June 2018

Spain

734

746

United States

297

385

Mexico

1,287

1,200

Turkey

282

372

South America

404

332

Rest of Eurasia

55

60

Subtotal operating segments

3,058

3,094

Corporate Center

(616)

(558)

Total

2,442

2,536

Interest income by geographical area

The breakdown of the balance of “Interest income and other income” in the accompanying consolidated income statements by geographical area is as follows:

Interest Income. Breakdown by geographical area (Millions of Euros)

 

Notes

June 2019

June 2018

Domestic

 

2,466

2,443

Foreign

 

13,212

11,975

European Union

 

245

247

Eurozone

 

164

170

No Eurozone

 

81

76

Other countries

 

12,967

11,728

Total

32.1

15,678

14,418

Of which BBVA, S.A.:

 

 

 

Domestic

 

2,199

2,174

Foreign

 

286

180

European Union

 

104

66

Eurozone

 

83

45

No Eurozone

 

22

21

Other countries

 

182

114

Total

 

2,485

2,354

F-62 


 

  

49.   Subsequent events

From July 1, 2019 to the date of preparation of these condensed interim consolidated financial statements, no other subsequent events not mentioned above in these condensed interim financial statements have taken place that could significantly affect the Group’s earnings or its equity position.  

 

F-63 


 

 

 

 

 

 

 

 

 

 

 

LOGO BBVA

 

 

Appendices

 

 

 

 

F-64 


 

APPENDIX I. Quantitative information on refinancing and restructuring operations and other requirement under Bank of Spain Circular 6/2012

a) Quantitative information on refinancing and restructuring operations

The breakdown of refinancing and restructuring operations as of June 30, 2019 and December 31, 2018, is as follows:

 

JUNE 2019 BALANCE OF FORBEARANCE

    (Millions of Euros)

 

TOTAL

 

Unsecured loans

Secured loans

Accumulated impairment or accumulated losses in fair value due to credit risk

 

 

 

 

 

Maximum amount of secured loans that can be considered

 

Number of operations

Gross carrying amount

Number of operations

Gross carrying amount

Real estate mortgage secured

Rest of secured loans

Credit institutions

-

-

-

-

-

-

-

General Governments

78

107

67

69

57

-

13

Other financial corporations and individual entrepreneurs (financial business)

400

13

61

5

3

-

7

Non-financial corporations and individual entrepreneurs (corporate non-financial activities)

54,619

4,310

16,862

4,229

2,079

235

3,084

Of which: financing the construction and property (including land)

585

242

1,314

847

431

17

435

Rest homes (*)

162,338

1,335

77,626

6,381

4,762

103

1,475

Total

217,435

5,764

94,616

10,684

6,902

338

4,579

 

 

Of  which:  IMPAIRED

 

Unsecured loans

Secured loans

Accumulated impairment or accumulated losses in fair value due to credit risk

 

 

 

 

 

Maximum amount of secured loans that can be considered

 

Number of operations

Gross carrying amount

Number of operations

Gross carrying amount

Real estate mortgage secured

Rest of secured loans

Credit institutions

-

-

-

-

-

-

-

General Governments

47

43

33

23

16

-

9

Other financial corporations and individual entrepreneurs (financial business)

256

10

33

3

1

-

6

Non-financial corporations and individual entrepreneurs (corporate non-financial activities)

34,785

2,797

10,899

2,627

1,100

72

2,734

Of which: financing the construction and property (including land)

544

213

923

554

234

5

401

Rest homes (*)

93,573

682

36,753

3,105

2,141

23

1,163

Total

128,661

3,532

47,718

5,757

3,259

95

3,912

(*)   Number of operations does not include Garanti BBVA.

Includes mortgage-backed real estate operations with loan to value ratio of greater than 1, and secured operations, other than transactions secured by real estate mortgage regardless of their loan to value ratio.

The accumulated impairment or accumulated losses in fair value due to credit risk correspond to €667 million of collective impairment losses and €3,912 million of specific impairment losses.

F-65 


 

 

DECEMBER 2018 BALANCE OF FORBEARANCE

    (Millions of Euros)

 

TOTAL

 

Unsecured loans

Secured loans

Accumulated impairment or accumulated losses in fair value due to credit risk

 

 

 

 

 

Maximum amount of secured loans that can be considered

 

Number of operations

Gross carrying amount

Number of operations

Gross carrying amount

Real estate mortgage secured

Rest of secured loans

Credit institutions

-

-

-

-

-

-

-

General Governments

75

111

46

64

52

-

15

Other financial corporations and individual entrepreneurs (financial business)

252

13

29,360

5

3

-

6

Non-financial corporations and individual entrepreneurs (corporate non-financial activities)

44,271

4,483

15,493

4,177

2,200

221

3,148

Of which: financing the construction and property (including land)

734

258

1,627

962

501

12

517

Rest homes (*)

193,061

1,326

355,466

6,990

5,083

150

1,716

Total

237,659

5,933

400,365

11,236

7,338

371

4,885

 

 

Of  which:  IMPAIRED

 

Unsecured loans

Secured loans

Accumulated impairment or accumulated losses in fair value due to credit risk

 

 

 

 

 

Maximum amount of secured loans that can be considered

 

Number of operations

Gross carrying amount

Number of operations

Gross carrying amount

Real estate mortgage secured

Rest of secured loans

Credit institutions

-

-

-

-

-

-

-

General Governments

46

65

12

16

8

-

10

Other financial corporations and individual entrepreneurs (financial business)

133

4

29,320

4

2

-

5

Non-financial corporations and individual entrepreneurs (corporate non-financial activities)

25,420

2,723

9,922

2,777

1,192

100

2,773

Of which: financing the construction and property (including land)

631

200

1,145

656

254

1

477

Rest homes (*)

116,916

741

42,403

3,673

2,435

26

1,414

Total

142,515

3,533

81,657

6,470

3,636

126

4,202

(*)   Number of operations does not include Garanti BBVA.

Includes mortgage-backed real estate operations with loan to value ratio of greater than 1, and secured operations, other than transactions secured by real estate mortgage regardless of their loan to value ratio.

The accumulated impairment or accumulated losses in fair value due to credit risk correspond to €682 million of collective impairment losses and €4,202 million of specific impairment losses.

F-66 


 

In addition to the restructuring and refinancing transactions mentioned in this section, loans that were not considered impaired or renegotiated have been modified based on the criteria set out in the accounting regulation that applies. These loans have not been classified as renegotiated or impaired, since they were modified for commercial or competitive reasons (for instance, to improve relationships with clients) rather than for economic or legal reasons relating to the borrower's financial situation.

The table below provides a breakdown by segments of the forbearance operations (net of provisions) as of June 30, 2019 and December 31, 2018:

Forbearance operations. Breakdown by segments (Millions of Euros)

 

June 2019

December 2018

Credit institutions

-

-

Central governments

163

160

Other financial corporations and individual entrepreneurs (financial activity)

11

13

Non-financial corporations and individual entrepreneurs (non-financial activity)

5,455

5,512

Of which: Financing the construction and property development (including land)

654

702

Households

6,241

6,600

Total carrying amount

11,869

12,284

NPL ratio by type of renegotiated loan

The non performing ratio of the renegotiated portfolio is defined as the impaired balance of renegotiated loans that shows signs of difficulties as of the closing of the reporting period, divided by the total payment outstanding in that portfolio.

As of June 30, 2019 and December 31, 2018, the non performing ratio for each of the portfolios of renegotiated loans is as follows:

Ratio of Impaired loans - Past due

 

June 2019

December 2018

General governments

38%

47%

Commercial

64%

64%

Of which: Construction and developer

70%

70%

Other consumer

49%

53%

 

 

F-67 


 

b) Qualitative information on the concentration of risk by activity and guarantees

Loans and advances to customers by activity (carrying amount)

June 2019 (Millions of Euros)

 

 

 

 

Collateralized Credit Risk. Loan to value

 

Total (*)

Mortgage loans

Secured loans

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

General governments

29,966

1,102

9,069

3,250

1,757

1,100

3,334

730

Other financial institutions

21,290

289

12,229

894

233

80

11,198

113

Non-financial institutions and individual entrepreneurs

174,197

28,455

29,399

21,779

11,036

9,500

5,160

10,379

Construction and property development

14,158

4,597

1,742

1,550

1,996

1,769

432

592

Construction of civil works

7,420

854

579

543

247

254

148

241

Other purposes

152,619

23,004

27,078

19,686

8,793

7,477

4,580

9,546

Large companies

97,595

9,663

17,559

11,872

4,097

3,992

2,298

4,963

SMEs (**) and individual entrepreneurs

55,024

13,341

9,519

7,814

4,696

3,485

2,282

4,583

Rest of households and NPISHs (***)

165,142

108,159

5,640

21,724

27,641

33,117

21,458

9,859

Housing

110,423

104,618

2,397

20,008

26,284

32,084

19,276

9,363

Consumption

41,636

504

2,504

492

467

231

1,678

140

Other purposes

13,083

3,037

739

1,224

890

802

504

356

TOTAL

390,595

138,005

56,337

47,647

40,667

43,797

41,150

21,081

MEMORANDUM ITEM:

 

 

 

 

 

 

 

 

Forbearance operations (****)

11,836

8,093

408

1,684

1,417

1,661

1,417

2,322

(*)    The amounts included in this table are net of impairment losses.

(**)   Small and medium enterprises.

(***)  Nonprofit institutions serving households.

(****) Net of provisions.

 

 

F-68 


 

 

December 2018 (Millions of Euros)

 

 

 

 

Collateralized loans and receivables -Loans and advances to customers. Loan to value

 

Total (*)

Mortgage loans

Secured loans

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

General governments

30,488

1,056

7,750

1,729

1,856

1,119

3,514

588

Other financial institutions

20,802

233

12,549

1,167

221

93

11,209

92

Non-financial institutions and individual entrepreneurs

173,493

29,001

32,371

25,211

11,121

9,793

5,087

10,160

Construction and property development

14,323

5,226

2,539

1,979

2,556

2,140

486

605

Construction of civil works

7,775

1,082

620

703

285

195

200

319

Other purposes

151,394

22,694

29,212

22,529

8,281

7,459

4,401

9,235

Large companies

97,132

9,912

19,069

13,918

3,979

4,019

2,245

4,820

SMEs (**) and individual entrepreneurs

54,262

12,782

10,143

8,611

4,302

3,440

2,156

4,416

Rest of households and NPISHs (***)

163,068

109,578

5,854

21,974

27,860

33,200

21,490

10,908

Housing

111,007

105,817

2,419

19,981

26,384

32,122

19,345

10,404

Consumption

40,124

522

2,600

489

587

306

1,597

142

Other purposes

11,938

3,239

835

1,505

888

772

547

362

TOTAL

387,850

139,868

58,524

50,082

41,058

44,206

41,300

21,747

MEMORANDUM ITEM:

 

 

 

 

 

 

 

 

Forbearance operations (****)

12,284

8,325

523

1,508

1,421

1,769

1,527

2,623

(*)    The amounts included in this table are net of impairment losses.

(**)   Small and medium enterprises

(***)  Nonprofit institutions serving households.

(****) Net of provisions.

F-69 


 

c) Information on the concentration of risk by activity and geographical areas

June 2019 (Millions of Euros)

 

TOTAL (*)

Spain

European Union Other

America

Other

Credit institutions

114,536

19,094

45,699

35,619

14,124

General governments

140,777

64,906

12,952

52,739

10,180

Central Administration

103,061

45,941

12,670

34,398

10,052

Other

37,716

18,965

282

18,341

128

Other financial institutions

48,263

12,817

18,184

14,704

2,558

Non-financial institutions and individual entrepreneurs

226,305

70,667

23,355

89,317

42,966

Construction and property development

17,548

3,375

150

10,532

3,491

Construction of civil works

10,897

5,586

1,391

1,502

2,418

Other purposes

197,860

61,706

21,814

77,283

37,057

Large companies

137,146

37,066

20,839

54,477

24,764

SMEs and individual entrepreneurs

60,714

24,640

975

22,806

12,293

Other households and NPISHs

165,516

92,975

3,255

59,018

10,268

Housing

110,424

77,151

737

29,274

3,262

Consumer

41,637

11,180

644

23,087

6,726

Other purposes

13,455

4,644

1,874

6,657

280

TOTAL

695,397

260,459

103,445

251,397

80,096

(*)  The definition of risk for the purpose of this statement includes the following items on the public balance sheet: “Loans and advances to credit institutions”, “Loans and advances”, “Debt securities”, “Equity instruments”, “Other equity securities”, “Derivatives and hedging derivatives”, “Investments in subsidiaries, joint ventures and associates” and “Guarantees given and contingent risks”. The amounts included in this table are net of impairment losses

 

December 2018 (Millions of Euros)

 

TOTAL (*)

Spain

European Union Other

America

Other

Credit institutions

113,978

35,728

33,440

31,234

13,575

General governments

123,382

53,686

11,081

50,092

8,523

Central Administration

87,611

35,691

10,756

32,735

8,428

Other

35,771

17,995

325

17,357

95

Other financial institutions

49,166

13,784

17,977

15,345

2,061

Non-financial institutions and individual entrepreneurs

226,487

70,536

24,565

87,419

43,967

Construction and property development

17,697

3,497

244

10,113

3,843

Construction of civil works

11,430

5,789

1,535

1,762

2,343

Other purposes

197,361

61,250

22,786

75,543

37,781

Large companies

137,150

36,964

22,114

53,423

24,649

SMEs and individual entrepreneurs

60,211

24,286

672

22,120

13,132

Other households and NPISHs

163,443

91,977

3,383

56,777

11,306

Housing

111,007

78,414

765

28,034

3,794

Consumer

40,124

10,303

629

22,036

7,155

Other purposes

12,312

3,259

1,989

6,707

357

TOTAL

676,456

265,710

90,447

240,867

79,432

(*)  The definition of risk for the purpose of this statement includes the following items on the public balance sheet: “Loans and advances to credit institutions”, “Loans and advances”, “Debt securities”, “Equity instruments”, “Other equity securities”, “Derivatives and hedging derivatives”, “Investments in subsidiaries, joint ventures and associates” and “Guarantees given and contingent risks”. The amounts included in this table are net of impairment losses.

 

F-70 


 

APPENDIX II. Additional information on risk concentration

Quantitative information on activities in the real-estate market in Spain

The following quantitative information on real-estate activities in Spain has been prepared using the reporting models required by Bank of Spain Circular 5/2011, of November 30.

Lending for real estate development of the loans as of June 30, 2019 and December 31, 2018, is shown below:

June 2019. Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase (Millions of Euros)

 

Gross Amount

Drawn Over the Guarantee Value

Accumulated impairment

Financing to construction and real estate development (including land) (Business in Spain)

2,766

782

(397)

Of which: Impaired assets

708

348

(341)

Memorandum item:

-

-

-

Write-offs

2,554

 

 

Memorandum item:

-

-

-

Total loans and advances to customers, excluding the General Governments (Business in Spain) (book Value)

189,406

 

 

Total consolidated assets (total business) (book value)

697,626

 

 

Impairment and provisions for normal exposures

4,972

 

 

 

December 2018. Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase (Millions of Euros)

 

Gross Amount

Drawn Over the Guarantee Value

Accumulated impairment

Financing to construction and real estate development (including land) (Business in Spain)

3,183

941

(537)

Of which: Impaired assets

875

440

(463)

Memorandum item:

 

 

 

Write-offs

2,619

 

 

Memorandum item:

 

 

 

Total loans and advances to customers, excluding the General Governments (Business in Spain) (book Value)

183,196

 

 

Total consolidated assets (total business) (book value)

676,689

 

 

Impairment and provisions for normal exposures

4,938

 

 

The following is a description of the real estate credit risk based on the types of associated guarantees:

Financing allocated by credit institutions to construction and real estate development and lending for house purchase (Millions of Euros)

 

June 2019

December 2018

Without secured loan

274

324

With secured loan

2,492

2,859

Terminated buildings

1,562

1,861

Homes

1,129

1,382

Other

433

479

Buildings under construction

470

432

Homes

465

408

Other

5

24

Land

460

566

Urbanized land

300

364

Rest of land

160

202

Total

2,766

3,183

The table below provides the breakdown of the financial guarantees given as of June 30, 2019 and December 31, 2018:

Financial guarantees given (Millions of Euros)

 

June 2019

December 2018

Houses purchase loans

47

48

Without mortgage

5

24

F-71 


 

The information on the retail mortgage portfolio risk (housing mortgage) as of June 30, 2019 and December 31, 2018 is as follows:

June 2019. Financing allocated by credit institutions to construction and real estate development and lending for house purchase.  (Millions of Euros)

 

Gross amount

Of which: impaired loans

Houses purchase loans

78,462

3,147

Without mortgage

1,690

25

With mortgage

76,772

3,122

 

December 2018. Financing allocated by credit institutions to construction and real estate development and lending for house purchase. (Millions of Euros)

 

Gross amount

Of which: impaired loans

Houses purchase loans

80,159

3,852

Without mortgage

1,611

30

With mortgage

78,548

3,822

The loan to value (LTV) ratio of the above portfolio is as follows:

LTV Breakdown of mortgage to households for the purchase of a home (Business in Spain) (Millions of Euros)

 

Total risk over the amount of the last valuation available (Loan To Value-LTV)

 

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

Total

Gross amount June 2019

14,524

18,856

21,754

12,693

8,945

76,772

Of which: Impaired loans

180

300

477

553

1,612

3,122

Gross amount 2018

14,491

18,822

21,657

13,070

10,508

78,548

Of which: Impaired loans

204

323

507

610

2,178

3,822

Outstanding home mortgage loans as of June 30, 2019 and December 31, 2018 had an average LTV of 48% and 49%, respectively.

F-72 


 

The breakdown of foreclosed, acquired, purchased or exchanged assets from debt from loans relating to business in Spain, as well as the holdings and financing to non-consolidated entities holding such assets is as follows:

Information about assets received in payment of debts (Business in Spain) (Millions of Euros)

 

 

June 2019

 

 

Gross

Value

Provisions

Of which: Valuation adjustments on impaired assets, from the time of foreclosure

Carrying Amount

Real estate assets from loans to the construction and real estate development sectors in Spain.

 

1,198

639

368

559

Terminated buildings

 

470

188

102

282

Homes

 

294

112

65

182

Other

 

176

76

37

100

Buildings under construction

 

87

52

33

35

Homes

 

86

51

33

35

Other

 

1

1

-

-

Land

 

641

399

233

242

Urbanized land

 

576

363

201

213

Rest of land

 

65

36

32

29

Real estate assets from mortgage financing for households for the purchase of a home

 

1,400

710

192

690

Rest of foreclosed real estate assets

 

410

215

32

195

Equity instruments, investments and financing to non-consolidated companies holding said assets

 

1,417

244

206

1,173

Total

 

4,425

1,808

798

2,617

 

Information about assets received in payment of debts (Business in Spain) (Millions of Euros)

 

 

December 2018

 

 

Gross

Value

Provisions

Of which: Valuation adjustments on impaired assets, from the time of foreclosure

Carrying Amount

Real estate assets from loans to the construction and real estate development sectors in Spain.

 

2,165

1,252

828

913

Terminated buildings

 

991

445

274

546

Homes

 

588

245

144

343

Other

 

403

200

130

203

Buildings under construction

 

209

131

96

78

Homes

 

194

117

85

77

Other

 

15

14

11

1

Land

 

965

676

458

289

Urbanized land

 

892

633

421

259

Rest of land

 

73

43

37

30

Real estate assets from mortgage financing for households for the purchase of a home

 

1,797

932

331

865

Rest of foreclosed real estate assets

 

348

192

40

156

Equity instruments, investments and financing to non-consolidated companies holding said assets

 

1,345

234

234

1,111

Total

 

5,655

2,610

1,433

3,045

F-73 


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

 

 

By:

/s/ JAIME SÁENZ DE TEJADA PULIDO

1.            

Name:  

JAIME SÁENZ DE TEJADA PULIDO

 

Title:.

Chief Financial Officer

Date: July 31, 2019

F-74